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----------------------------------------------------------------- ¦ REFERENCE TITLE: corporation commission; securities enforcement ¦ ----------------------------------------------------------------- ¦ ¦ ¦ ¦ ¦ ¦ ¦ State of Arizona ¦ ¦ Senate ¦ ¦ Forty-fifth Legislature ¦ ¦ Second Regular Session ¦ ¦ 2002 ¦ ¦ ¦ ----------------------------------------------------------------- ¦ SB 1107 ¦ ----------------------------------------------------------------- ¦ Introduced by ¦ ¦ Senator Cirillo ¦ -----------------------------------------------------------------
AN ACT
AMENDING SECTIONS 40-106, 44-1843, 44-1848, 44-1850, 44-1872, 44-1894, 44-1895, 44-1941, 44-1948, 44-1961, 44-1962, 44-1974, 44-2003, 44-2031, 44-2032, 44-2054, 44-3101, 44-3152, 44-3158, 44-3201, 44-3214, 44-3291 AND 44-3292, ARIZONA REVISED STATUTES; RELATING TO THE CORPORATION COMMISSION SECURITIES DIVISION.
(TEXT OF BILL BEGINS ON NEXT PAGE)
Be it enacted by the Legislature of the State of Arizona:
Section 1. Section 40-106, Arizona Revised Statutes, is amended to read:
40-106. Legal services
A. The attorney general shall be attorney for the securities division of the commission and the commission for matters arising out of securities division activity. AT THE COMMISSION'S DISCRETION, THE ATTORNEYS EMPLOYED BY THE SECURITIES DIVISION MAY REPRESENT THE COMMISSION IN ADMINISTRATIVE AND CIVIL MATTERS ARISING UNDER TITLE 44, CHAPTER 12 OR 13.
B. The executive secretary of the commission may employ attorneys to represent the commission and each commissioner, in regard to matters in connection with the other powers and duties of the commission.
Sec. 2. Section 44-1843, Arizona Revised Statutes, is amended to read:
44-1843. Exempt securities; fee; filing
A. Sections 44-1841 and 44-1842, section 44-1843.02, subsections B and C and sections 44-3321 and 44-3325 do not apply to any of the following classes of securities:
1. Securities issued or guaranteed by the United States, or by any state,
territory or insular possession thereof OF THE UNITED STATES, or by any
political subdivision of such state, territory or insular possession, or by the
District of Columbia, or by any agency or instrumentality of one or more of any of
the foregoing. This exemption shall not apply to securities regulated pursuant to section
44-1843.01.
2. Securities issued by a national bank, a bank or a credit or loan association
organized pursuant to an act of Congress and supervised by the United States or an agency
thereof OF THE UNITED STATES, or issued by a state bank or savings institution
the business of which is supervised and regulated by an agency of this state or of the
United States.
3. Securities issued by a savings and loan association subject to supervision by an agency of this state.
4. Insurance or endowment policies, VARIABLE CONTRACTS, annuity contracts or optional annuity contracts issued by a person subject to the supervision of and licensed by the insurance commissioner, the bank commissioner or any agency of the United States, any state or the District of Columbia performing like functions.
5. Securities issued or guaranteed either as to principal, interest or dividend by
a railroad or public utility if the issuance of its securities is regulated by an agency
of the United States, a state, territory or insular possession thereof OF THE
UNITED STATES, an agency of the District of Columbia, or an agency of the
Dominion of Canada or any province thereof OF THE DOMINION OF CANADA, and also
equipment trust certificates in respect to equipment conditionally sold or leased to a
railroad or public utility, if other securities issued by such railroad or public utility
would be exempt under this paragraph.
6. Securities issued by a person that is organized and operated exclusively for religious, educational, benevolent, fraternal, charitable or reformatory purposes and not for pecuniary profit, and no part of the net earnings of which inures to the benefit of any person, private stockholder or individual and securities issued by or any interest or participation in any pooled income fund, collective trust fund, collective investment fund or similar fund that is excluded from the definition of an investment company under section 3(c)(10)(B) of the investment company act of 1940. The exemption prescribed in this paragraph does not apply to any of the following, unless excluded from the definition of an investment company under section 3(c)(10)(B) of the investment company act of 1940:
(a) Securities made liens upon revenue producing property subject to taxation.
(b) Securities issued by a nonprofit organization that is engaged in, intends to
engage in, controls, finances, or lends funds or property to other entities engaged
in the construction, operation, maintenance or management of a hospital, sanitarium, rest
home, clinic, medical hotel, mortuary, cemetery, mausoleum or other similar facilities.
(c) Interest bearing or noninterest bearing debt securities.
(d) Securities whose terms include significant features that are common to debt securities and that the commission finds are the functional equivalent of debt securities.
7. Securities listed or approved for listing upon the issuance thereof upon the New
York stock exchange, the American stock exchange, the midwest stock exchange or any other
national securities exchange THAT IS registered under the securities exchange act
of 1934 AND that is designated by the commission as provided in this paragraph, and
securities designated or approved for designation on notice of issuance on the national
market system of a national securities association registered under the securities
exchange act of 1934, and all securities senior or equal in rank to any securities so
listed or approved for listing, designated or approved for designation or represented by
subscription rights or warrants that have been so listed, designated or approved and any
warrant or right to purchase or subscribe to any of the foregoing. In addition to the
securities exchanges prescribed in this paragraph, the commission may by order designate
any registered national securities exchange if it finds that it would be in the public
interest for securities listed thereon ON THE EXCHANGE to be exempt. The
commission may at any time by order withdraw a designation of an exchange or association
made under this paragraph.
8. Commercial paper that arises out of a current transaction or the proceeds of which have been or are to be used for current transactions, that evidences an obligation to pay cash within nine months of the date of issuance or sale, exclusive of days of grace, or any renewal of such paper that is likewise limited, or any guarantee of such paper or of any such renewal.
9. Securities issued or guaranteed by any foreign government with which the United States is at the time of the sale maintaining diplomatic relations, or securities issued or guaranteed by a political subdivision of such foreign government having the power of taxation, if none of the securities of the foreign government or political subdivision are in default either as to principal or interest, and which securities when offered for sale in this state are acknowledged as valid obligations by the foreign government or political subdivision and registered under the securities act of 1933.
10. Notes or bonds secured by a mortgage or deed of trust on real estate or chattels, or a contract or agreement for the sale of real estate or chattels, if the entire mortgage, contract or agreement together with all notes or bonds secured thereby is sold or offered for sale as a unit, except for real property investment contracts.
11. Mortgage related securities, as defined in section 3(a)(41) of the securities exchange act of 1934.
B. Issuers of securities that are exempt under subsection A, paragraphs 6, 7 and 9 of this section, within thirty days after the first sale of the securities in this state, shall pay to the commission a fee of two hundred dollars for each offering, and the commission shall deposit the fees in the commerce and economic development commission fund established in section 41-1505.10.
C. Any securities that are offered and sold pursuant to section 4(5) of the securities act of 1933 or that are mortgage related securities as the term is defined in section 3(a)(41) of the securities exchange act of 1934 are not preempted by federal law. These instruments, commonly referred to as private mortgage backed securities, may be exempt from the registration requirements of this chapter if the transaction or the securities are otherwise exempt under this chapter. This subsection specifically overrides the preemption of state law contained in section 106(c) of the secondary mortgage market enhancement act of 1984 (P.L. 98-440).
D. Noncompliance with the requirements in subsection B of this section to pay fees shall not result in the loss of the exemption allowed by this section.
Sec. 3. Section 44-1848, Arizona Revised Statutes, is amended to read:
44-1848. Registration of dealers and salesmen dealing with certain exempt securities or engaging in certain exempt transactions; exemptions
A. A DEALER OR SALESMAN WHO ENGAGES IN TRANSACTIONS INVOLVING VARIABLE CONTRACTS, WHICH ARE EXEMPT UNDER SECTION 44-1843, SUBSECTION A, PARAGRAPH 4, MUST REGISTER WITH THE COMMISSION PURSUANT TO ARTICLE 9 OF THIS CHAPTER.
A. B. Notwithstanding any other law, the commission may by rule
require that any dealer or salesman who engages in transactions involving securities
exempt under section 44-1843, subsection A, paragraph 1, 7 or 9, or who engages in
transactions involving securities issued by a nonprofit organization which is engaged in,
intends to engage in, controls, finances, or lends funds or property to other entities
engaged in the construction, operation, maintenance, or management of a hospital,
sanitarium, rest home, clinic, medical hotel, mortuary, cemetery, mausoleum or other
similar facilities, or who engages in transactions described in section 44-1844,
subsection A, paragraph 1, 4, 11 or 18 or section 44-1845, shall be registered under
article 9 of this chapter.
B. C. Any rule adopted pursuant to this section shall require
registration of a dealer or salesman engaged in transactions described in section
44-1844, subsection A, paragraph 1 only if such dealer or salesman is engaged principally
and primarily in the business of making a series of private offerings. For the purposes
of this subsection, "series" means in excess of four private offerings in any consecutive
twelve-month period.
C. D. The provisions of Subsection A B of this section
do DOES not apply to transactions involving the following securities:
1. Securities issued by those financial institutions and enterprises licensed and regulated pursuant to title 6.
2. Stock and stock options issued pursuant to an employee stock option plan.
3. Promissory notes issued in the normal course of business.
4. Securities issued to corporations not formed for the purpose of evasion of this section.
5. Securities issued in exchange for all or substantially all of the capital stock of another corporation.
6. Such other securities transactions as the commission may exempt by rule.
Sec. 4. Section 44-1850, Arizona Revised Statutes, is amended to read:
44-1850. Viatical or life settlement investment contracts
A. Sections SECTION 44-1841 and 44-1842 do DOES not apply to
viatical or life settlement investment contracts if either:
1. The person who assigns, transfers, sells, devises or bequests any portion of the death benefit under or ownership of either an insurance policy or certificate of insurance does not enter into more than three viatical or life settlement investment contracts in any calendar year.
2. All of the following apply:
(a) At least ten days before the initial sale of a viatical or life settlement investment contract within or from this state, and every twelve months after the initial filing date if the issuer continues to offer securities within or from this state, the issuer files with the commission all of the following:
(i) A notice of the issuer's intent to sell securities pursuant to this section
that includes the issuer's name, the issuer's type of organization, the state in which
the issuer is organized, the date the issuer intends to begin selling securities within
or from this state, the issuer's principal business and mailing address and a statement
that the issuer is not prohibited pursuant to subsection E of this section from claiming
an exemption pursuant to THIS subsection A of this section. An authorized
officer of the issuer shall sign the notice and the signature shall be notarized.
(ii) A consent to service of process.
(iii) An audit report of an independent certified public accountant together with a
balance sheet and related statements of income OR OPERATIONS, STOCKHOLDERS'
EQUITY OR retained earnings and cash flows that reflect the issuer's financial
position, the results of the issuer's operations and the issuer's cash flows as
of a date within fifteen months before the date of FILING the notice prescribed in
this subdivision. The financial statements listed in this subdivision shall be prepared
in conformity with generally accepted accounting principles and shall be examined
according to IN ACCORDANCE WITH generally accepted auditing standards. If the
date of the audit report is more than one hundred twenty days before the date of
FILING the notice prescribed in this subdivision, the issuer shall provide
unaudited interim financial statements PREPARED IN CONFORMITY WITH GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES.
(b) The issuer discloses to the offeree in writing all of the following:
(i) The purchaser's right to rescind or cancel the investment and receive a refund.
(ii) The name, address and telephone number of the issuing insurance company.
(iii) The total value of the policy and the percentage of the policy the purchaser will own.
(iv) The policy number, issue date and type.
(v) If a group policy, the name, address and telephone number of the group and, if applicable, the material terms and conditions of converting the policy to an individual policy, including the amount of increased premiums.
(vi) If a term policy, the term and the name, address and telephone number of the person who will be responsible for renewing the policy if necessary.
(vii) Whether the policy is contestable.
(viii) If a contestable policy, the risk that the insurance company may cancel the policy or refuse to pay a claim made during the contestable period.
(ix) The policy premiums and terms of policy payments.
(x) The amount of the purchaser's monies that will be set aside to pay premiums.
(xi) The name, address and telephone number of the person who will be the policy owner and the person who will be responsible for paying premiums.
(xii) The date on which the purchaser will be required to pay premiums if necessary and the amount of the premium.
(xiii) The separate amounts of the purchaser's monies that will be used to pay the seller's commission, purchase the policy and pay administrative expenses and other transaction costs.
(xiv) Any other disclosure required by the commission.
B. At least ten days before use within this state, an issuer shall file with the commission all advertising and sales materials that will be published, exhibited, broadcast or otherwise used, directly or indirectly, in the offer or sale of a viatical or life settlement investment contract.
C. A purchaser of a viatical or life settlement investment contract that was purchased pursuant to this section may rescind or cancel the viatical or life settlement investment contract pursuant to this section. The purchaser may rescind or cancel the investment at any time before seven calendar days after the date the purchaser pays the required consideration to the issuer or the issuer's agent or the date the purchaser receives the written disclosures required under subsection A of this section, whichever is later. The purchaser shall notify the issuer or the issuer's agent in writing of the rescission or cancellation. No specific form is required for the rescission or cancellation. The rescission or cancellation is effective when personally delivered, deposited in the United States mail or deposited with a commercial courier or delivery service. The issuer shall refund all the purchaser's money within seven calendar days after receiving the notice of rescission or cancellation.
D. The commission may deny or revoke an exemption pursuant to subsection A of this section. A denial or revocation of the exemption is effective on the date the commission signs the notice of denial or revocation. The commission may deny or revoke the exemption if the commission finds any of the following:
1. The notice filing, advertising materials, sales materials or disclosures made to offerees are incomplete, inaccurate or misleading.
2. The sale of the securities operates or would operate as a fraud or deceit on investors.
3. The issuer is insolvent or is in an unsound financial condition.
4. The issuer has refused to allow the commission to examine the issuer's affairs or has failed or refused to provide information to the commission that is required by this chapter or any rule or order of the commission.
5. The issuer has failed to reasonably supervise the issuer's salesmen.
6. The issuer has knowingly retained a salesman after notice that the salesman has committed an offense under this chapter or has been convicted of an offense or is subject to an order or judgment as described in subsection E of this section.
E. The securities of an issuer are not exempt pursuant to subsection A of this section if the issuer or any of its affiliates, directors, officers, general partners or beneficial owners of at least ten per cent of any class of its equity securities or managing underwriter of the securities:
1. Has been convicted of a felony involving racketeering or a transaction in securities or of which fraud is an essential element or of any offense listed in section 13-2301, subsection D, paragraph 4.
2. Has been convicted within the ten years before or at any time after the filing of a notice of intent to sell securities pursuant to this section of a misdemeanor involving racketeering or a transaction in securities or of which fraud or dishonesty is an essential element.
3. Is subject to an order or judgment of a court of competent jurisdiction OR ANY STATE OR FEDERAL ADMINISTRATIVE TRIBUNAL entered within ten years before or at any time after the filing of a notice of intent to sell securities pursuant to this section and that either:
(a) Enjoins or restrains that person from engaging in or continuing any conduct or practice in connection with the sale or purchase of securities or the business of insurance.
(b) Involves fraud, deceit, racketeering or consumer protection laws.
4. Is subject to the reporting requirements of the securities exchange act of 1934 and has not filed all required reports during the twelve calendar months before the filing of a notice of intent to sell securities pursuant to this section.
5. Is subject to an order of an administrative tribunal, AN SRO or the SEC denying, suspending or revoking for at least six months a membership, registration or license to do any of the following:
(a) Act as a broker, dealer or salesman of securities.
(b) Act as an investment adviser or investment adviser representative as defined in section 44-3101.
F. The commission at its discretion may waive any disqualification caused by subsection E of this section if the waiver would not be contrary to the public interest. A disqualification under subsection E of this section ceases to exist if the basis for the disqualification has been removed by the jurisdiction that created it.
G. Subsection E, paragraph 3, subdivision (a) of this section does not exclude securities from the exemption provided in subsection A of this section, but may be a basis for denial or revocation pursuant to subsection D of this section, if all of the following apply:
1. The order of judgment is related to a viatical or life settlement investment contract.
2. The issuer provides the commission with a copy of the order or judgment at the time the initial notice is filed pursuant to subsection A, paragraph 2, subdivision (a) of this section or within twenty business days after entry of the order or judgment, whichever occurs last.
3. At the time the order or judgment is entered, the law of the issuing jurisdiction does not include a specific statute, regulation, rule or controlling judicial decision that requires the registration of a viatical or life settlement investment contract or its equivalent as a security.
H. Attempted compliance with this section does not act as an exclusive election.
Sec. 5. Section 44-1872, Arizona Revised Statutes, is amended to read:
44-1872. Procedure for registration by description; registration statement; consent to service of process
Securities qualified under section 44-1871 for registration by description shall be
registered by payment of the registration fee prescribed in subsection C of section
44-1861, SUBSECTION C, and filing of the following with the commission by the
issuer or a registered dealer:
1. A registration statement signed and verified under oath by the issuer or dealer filing the statement and including the following together with other information prescribed by the commission:
(a) Name and business address of the person filing the statement.
(b) Name and business address of issuer, and address of issuer's principal office in this state, if any.
(c) Title of securities being registered, total amount of securities to be offered,
offering price per unit and in the aggregate, amount of underwriting discounts or
commissions or other selling expense per unit and in the aggregate, and the net
amount to be received by the issuer per unit and in the aggregate.
(d) Amount of securities to be offered in this state, offering price per unit and
in the aggregate, and the amount of the registration fee computed in accordance with
subsection C of section 44-1861, SUBSECTION C.
(e) If the securities are registered under the securities act of 1933, a copy of the definitive prospectus filed with the SEC.
(f) A statement of the facts showing that the securities are entitled to be
registered by description, INCLUDING AN AUDIT REPORT OF AN INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANT FOR THE LAST THREE FISCAL YEARS together with a balance sheet,
surplus statements and profit and loss statements AND RELATED STATEMENTS OF INCOME
OR OPERATIONS, STOCKHOLDERS' EQUITY OR RETAINED EARNINGS AND CASH FLOWS THAT REFLECT THE
ISSUER'S FINANCIAL POSITION, THE RESULTS OF OPERATIONS AND CASH FLOWS, which if the
securities being registered are commodity investment contracts or commodity option
contracts may be those of either the issuer or of the dealer filing the statement,
meeting the standards of section 44-1871. , THE FINANCIAL STATEMENTS
REQUIRED BY THIS SUBDIVISION MUST BE prepared in accordance with IN CONFORMITY
WITH generally accepted accounting principles and certified by an independent public
or certified public accountant EXAMINED IN ACCORDANCE WITH GENERALLY ACCEPTED
AUDITING STANDARDS.
(g) The commission, or the director of securities if proper authority has been
delegated to him THE DIRECTOR, may require that an offering circular describing
the securities and containing other information prescribed by the commission or the
director be filed with the statement and be delivered to each offeree of such securities
by the person filing the statement.
2. If the person who is registering the securities is not a registered dealer or is not a corporation organized under the laws of this state, a consent to service of process conforming to the requirements of section 44-1862.
Sec. 6. Section 44-1894, Arizona Revised Statutes, is amended to read:
44-1894. Prospectus; contents; use of consolidated financial statements; amendment or supplement to prospectus required to show material change
A. Except as provided in section 44-1901, the prospectus required by section 44-1892 shall be filed with the application, and shall include the following, together with other information the commission requires:
1. The name and address of the issuer, date of incorporation or organization,
general character of the business transacted or to be transacted, and a description
of the principal assets of the issuer.
2. The name and address and business experience of each officer and director of the issuer, if a corporation or unincorporated association, of each trustee or other fiduciary, if a trust, or of each partner, if a partnership.
3. The total authorized capital of the issuer, the total amount of each class of securities authorized and the total amount of securities of each class issued and outstanding.
4. The total amount of each class of securities held by each officer or director, if a corporation or unincorporated association, by each trustee or other fiduciary, if a trust, by each partner, if a partnership, and by each beneficial owner of ten per cent or more of any class of securities.
5. The total amount of securities of each class issued or to be issued for options,
contracts, leases, patents, assignments, services or expenses, goodwill or other
intangible assets, the name and address of each person to whom the securities have been
or are to be issued, and the consideration received or to be received by the issuer
therefor.
6. The title or descriptive name and amount of the securities to be offered, the
offering price per unit and in the aggregate, the name and address of the principal
underwriter and the nature of the underwriting commitment, the amount of underwriting
discounts or commissions or other selling expenses per unit and in the aggregate,
and the net per unit and in the aggregate to be received by the issuer. The statement of
underwriting discounts or commissions or other selling expense shall include the maximum
amount to be paid by the issuer in cash or otherwise, directly or indirectly, in
connection with the sale of the securities.
7. The specific purposes for which funds to be derived from the sale of the
securities are to be used, and the approximate amount to be devoted to each purpose.
8. A description of all material contracts to which the issuer is a party and of all material litigation involving the issuer.
9. A balance sheet THAT REFLECTS THE ISSUER'S FINANCIAL POSITION as of a date
not more than ninety ONE HUNDRED TWENTY days prior to BEFORE the date
of filing, and, if the balance sheet is not certified, also a certified balance sheet as
of a date not more than one year prior to BEFORE the date of filing unless the
fiscal year of the issuer has ended within ninety ONE HUNDRED TWENTY days
prior to BEFORE the date of filing, in which case the certified balance sheet
may be as of the end of the preceding fiscal year.
10. Profit and loss and surplus Statements OF INCOME OR OPERATIONS,
STOCKHOLDERS' EQUITY OR RETAINED EARNINGS AND CASH FLOWS THAT REFLECT THE ISSUER'S
RESULTS OF OPERATIONS AND CASH FLOWS for each of the three fiscal years preceding the
date of the most recent balance sheet filed and for the period, if any, between the close
of the most recent of such fiscal years and the date of the most recent balance sheet
filed, OR OTHER FINANCIAL INFORMATION THE COMMISSION ESTABLISHES BY ORDER OR RULE.
, or, If the issuer has been in existence for less than three fiscal years,
profit and loss and surplus statements OF INCOME OR OPERATIONS, STOCKHOLDERS'
EQUITY OR RETAINED EARNINGS AND CASH FLOWS SHALL BE for the period of the issuer's
existence.
B. If the issuer has one or more subsidiaries, the commission or the director may
require, in addition to the balance sheet and profit and loss and surplus statements
RELATED STATEMENTS OF INCOME OR OPERATIONS, STOCKHOLDERS' EQUITY OR RETAINED EARNINGS
AND CASH FLOWS required by subsection A, paragraphs 9 and 10 of this section, a
consolidated balance sheet and RELATED consolidated profit and loss and surplus
statements OF INCOME OR OPERATIONS, STOCKHOLDERS' EQUITY OR RETAINED EARNINGS AND CASH
FLOWS THAT REFLECT THE CONSOLIDATED FINANCIAL POSITION, RESULTS OF OPERATIONS AND CASH
FLOWS for the issuer and its subsidiaries as of the same dates as the balance sheet
and profit and loss and surplus statements AS REQUIRED BY SUBSECTION A, PARAGRAPHS 9
AND 10 OF THIS SECTION.
C. If any material change occurs in the matters set forth in the prospectus filed under section 44-1892 and this section, or if any material change occurs in the plan of business of the issuer as set forth in the prospectus, each change shall be included in an amended prospectus or in a supplement to the prospectus which shall be promptly filed with the commission.
D. In connection with the registration of real property investment contracts, in addition to other information required by this chapter, the prospectus shall include the following:
1. A legal description or address of the property subject to the lien securing the note or contract being made or sold.
2. The name and address of the fee owner of the property subject to the lien securing the note or contract being made or sold.
3. Such information relative to the ability of the person liable on the obligation to meet the contractual payments, as the commission may require.
4. The existence of any improvements on the property or any utilities on or adjacent to the property which will service the property.
5. Terms and conditions of the contract or note being made or sold, including the principal balance owed, and the status of the principal and interest payments on the contract or note.
6. The terms and conditions of all prior recorded encumbrances which constitute liens on the property, the principal balance of such encumbrances and the status of principal and interest payments on the encumbrances.
7. Any assessments and tax liens of record on the property securing the contract or note being sold.
8. An independent appraisal of the value of the property subject to the lien securing the note or contract being made or sold. The appraisal shall state the value of the property as it exists on the date the appraisal is made.
9. The qualifications of the appraiser and the methods used in making the appraisal.
10. The loan to value ratio.
11. A description and amount of all fees paid by the borrower and investor.
12. A description of the method by which the yield is calculated.
E. Notwithstanding the provisions of this section, nothing in this section prevents the commission from entering into formal or informal agreements with the administrators of the securities laws of other states, Canada or Mexico and, as deemed appropriate by the commission, with the north American securities administrators association for the establishment of an international, national or regional coordinated uniform review of equity, debt or any other class of securities to reduce the regulatory burden and expense of registering public offerings in multiple states, Canada and Mexico.
Sec. 7. Section 44-1895, Arizona Revised Statutes, is amended to read:
44-1895. Preparation of required financial statements
Financial statements required under this article for registration of securities by qualification shall be:
1. Prepared in accordance CONFORMITY with generally accepted
accounting principles. and certified, if certification
2. EXAMINED IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING STANDARDS.
3. IF REPORTING is necessary, REPORTED ON by an independent public
or certified public accountant.
Sec. 8. Section 44-1941, Arizona Revised Statutes, is amended to read:
44-1941. Application for registration as dealer; contents; filing; consent to service of process; fee; exemption
A. Application for registration as a dealer may be made by any person. An
application for registration shall be signed by the applicant. The application shall be
filed with the commission, and shall contain the following, together with other
information the commission prescribes:
1. The name of the applicant.
2. The address of the principal place of business of the applicant and the addresses of all branch offices, if any, of the applicant in this state.
3. The character of business organization of the applicant and the date of organization.
4. The names and business addresses of all members, partners, officers, directors, trustees or managers of the applicant, a statement of the limitations, if any, of the liability of any partner, member, manager or trustee and a statement setting forth in chronological order the business history of each partner, member, officer, director, trustee or manager during the preceding ten years.
5. A brief description of the general character of the business conducted or to be conducted by the applicant.
6. A list of each state in which the applicant is registered as a dealer and whether or not the registration of the applicant as a dealer has been refused, cancelled, suspended or withdrawn in any state and, if so, a complete statement of the facts with respect thereto.
7. A statement showing whether the applicant is registered as a dealer under the securities exchange act of 1934 and whether any such registration of the applicant has been denied, revoked or suspended or made the subject of proceedings for denial, revocation or suspension by the SEC.
8. The name of each organization of dealers of which the applicant is a member, or before which any application for membership on the part of the applicant is pending, and whether any such membership of the applicant has been denied, revoked or suspended or made the subject of proceedings for denial, revocation or suspension.
9. The name of each securities exchange of which the applicant or any of its partners, officers, directors, trustees, members, managers or employees is a member and whether any such membership has been denied, revoked or suspended or made the subject of proceedings for denial, revocation or suspension.
10. For an applicant that is subject to the securities exchange act of 1934, any
financial information that is required to be provided to the SEC or its designee, under
the securities exchange act of 1934 to the extent requested by the commission. For
All other applicants, SHALL PROVIDE an audit report of an independent
certified public accountant together with a balance sheet, AND related
statements of income OR OPERATIONS, stockholders' equity or retained earnings and
cash flows THAT REFLECT THE DEALER'S FINANCIAL POSITION, RESULTS OF OPERATIONS AND
CASH FLOWS. THE FINANCIAL STATEMENTS LISTED IN THIS SUBSECTION MUST BE prepared in
accordance CONFORMITY with generally accepted accounting principles showing
the financial condition of the applicant AND EXAMINED IN ACCORDANCE WITH GENERALLY
ACCEPTED AUDITING STANDARDS as of the most recent practicable date before the date of
the application or the financial information established by the commission by rule.
11. A statement showing whether the applicant or an officer, director, partner,
member, trustee, or manager of the applicant has within the past ten years been
convicted of or charged with a felony or misdemeanor of which fraud is an essential
element, or a felony or misdemeanor involving the purchase or sale of securities or
arising out of the conduct of the business of the applicant as a dealer in securities,
and, if so, a complete statement of the facts with respect to the felony or misdemeanor.
12. A statement showing whether the applicant, or any officer, director, partner, member, trustee or manager of the applicant, has been enjoined or restrained by a court of competent jurisdiction in connection with any transaction involving the purchase or sale of securities and, if so, a complete statement of the facts with respect to the transaction.
B. An application for registration as a dealer shall be accompanied by a written consent to service of process on the commission in actions against that dealer, conforming to the requirements of section 44-1862, and payment of the registration fee prescribed by section 44-1861, subsection A or B.
C. The commission by rule or order may provide limited registration requirements for any dealer or class of dealers or exempt any dealer or class of dealers from registration under this article if the commission determines that registration is not necessary to protect the public interest due to the special characteristics of the securities or transactions in which the dealer or class of dealers is involved.
Sec. 9. Section 44-1948, Arizona Revised Statutes, is amended to read:
44-1948. Reporting requirements of dealers and salesmen; real property records
A. Dealers and salesmen shall retain registration by filing:
1. A supplemental statement showing changes in the facts set forth in the original application for registration as supplemented or amended as such changes occur or within ninety days after the change.
2. In the case of a dealer that is registered under the securities exchange act of 1934 and to the extent requested by the commission, any financial information that is required to be provided to the SEC or its designee under the securities exchange act of 1934. The dealer shall simultaneously file the same financial information with the commission.
3. In the case of a dealer that is not registered under the securities exchange act
of 1934, annually and within ninety days of the audit report date, the audit report of an
independent certified public accountant, together with a balance sheet, AND
related statements of income OR OPERATIONS, stockholders' equity or retained
earnings and cash flows THAT REFLECT THE DEALER'S FINANCIAL POSITION, THE RESULTS OF
OPERATIONS AND CASH FLOWS prepared in accordance CONFORMITY with generally
accepted accounting principles showing the financial condition of the dealer AND
EXAMINED IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING STANDARDS.
B. Dealers shall maintain files in connection with transactions involving real
property investment contracts that include listings, deposit receipts, cancelled checks,
copies of contracts, agreements and sellers' statements, documents concerning appraisals
and credit investigations and all other correspondence relating to the purchase and sale
of real property investment contracts. Dealers shall maintain books, records and accounts
in accordance CONFORMITY with generally accepted accounting principles, showing
the receipt and disbursement of funds received by dealers and salesmen in connection with
the purchase and sale of real property investment contracts. Dealers shall maintain files
and records relating to transactions involving real property investment contracts for
five years from the date the registration expires. The files and records are subject to
inspection at all times by authorized representatives of the commission.
Sec. 10. Section 44-1961, Arizona Revised Statutes, is amended to read:
44-1961. Grounds for denial, revocation or suspension of dealer registration; administrative remedies
A. After a hearing or notice and opportunity for a hearing as provided in article 11 of this chapter, the commission may enter an order suspending for a period of not to exceed one year, denying or revoking the registration of a dealer if the commission finds that:
1. The application for registration of the dealer, or any financial statement,
or other document or OTHER exhibit filed therewith, WITH THE APPLICATION
or any supplement or amendment thereto TO THE APPLICATION is incomplete,
inaccurate or misleading.
2. The dealer is insolvent or is in an unsound financial condition.
3. The dealer has violated this chapter or any rule or order of the commission
thereunder UNDER THIS CHAPTER.
4. The dealer purchases or sells securities at such variations from current market prices as, in the light of all the circumstances, are unconscionable.
5. The dealer has failed to file with the commission any record, report, financial
statement or other information required under this chapter or any rule or order of the
commission thereunder UNDER THIS CHAPTER, or has refused to permit an
examination into the dealer's affairs.
6. The dealer is lacking in integrity, or is not of good business
reputation, or is not qualified by training or experience.
7. The dealer has knowingly retained a salesman after notice that the salesman has committed an offense under this chapter.
8. The dealer has been convicted within ten years preceding the date of filing the
application for registration as a dealer, or at anytime thereafter, of a felony or
misdemeanor involving a transaction in securities, or of which fraud is an essential
element, or arising out of the conduct of any business in securities.
9. The dealer is permanently or temporarily enjoined by order, judgment or decree of an administrative tribunal or a court of competent jurisdiction from engaging in or continuing any conduct or practice in connection with the sale or purchase of securities.
10. The dealer is subject to an order of an administrative tribunal, an SRO or the SEC denying, suspending or revoking membership or registration as a broker or dealer in securities or an investment adviser or investment adviser representative for at least six months.
11. The dealer has been guilty of any fraudulent act or practice in connection with the purchase or sale of securities.
12. The dealer has failed to reasonably supervise its salesmen.
13. The dealer has engaged in dishonest or unethical practices in the securities industry.
14. THE DEALER HAS ENGAGED IN DISHONEST OR UNETHICAL PRACTICES IN BUSINESS OR FINANCIAL MATTERS.
B. IN ADDITION TO DENYING, REVOKING OR SUSPENDING THE REGISTRATION, IF THE COMMISSION FINDS THAT A DEALER HAS ENGAGED IN AN ACT, PRACTICE OR TRANSACTION DESCRIBED IN SUBSECTION A, PARAGRAPH 4, 12 OR 13, THE COMMISSION MAY DO ONE OR MORE OF THE FOLLOWING:
1. ASSESS ADMINISTRATIVE PENALTIES.
2. ORDER THE DEALER TO CEASE AND DESIST FROM ENGAGING IN THE ACT, PRACTICE OR TRANSACTION OR DOING ANY OTHER ACT IN FURTHERANCE OF THE ACT, PRACTICE OR TRANSACTION.
3. TAKE APPROPRIATE AFFIRMATIVE ACTION, AS PRESCRIBED BY THE COMMISSION, TO CORRECT THE CONDITIONS RESULTING FROM THE ACT, PRACTICE OR TRANSACTION, INCLUDING A REQUIREMENT TO PROVIDE RESTITUTION.
B. C. It is sufficient cause for denial, revocation or suspension of
registration of a dealer as provided in this section, if the dealer is a partnership,
corporation, unincorporated association or trust, that a member of the partnership,
or an officer or director of the corporation or unincorporated association,
or a trustee or other fiduciary of such trust, or a person controlling,
controlled by, or under common control with the dealer, has been guilty of any
act or omission which would be A sufficient ground for denying or revoking the
registration of an individual dealer.
C. D. If the registration of a dealer is revoked or denied, that dealer
may not file with the commission an application for registration under this chapter or
for licensure under chapter 13 of this title for at least one year after the date of the
revocation or denial.
Sec. 11. Section 44-1962, Arizona Revised Statutes, is amended to read:
44-1962. Grounds for denial, revocation or suspension of registration of salesman; administrative remedies
A. After a hearing or notice and opportunity for a hearing as provided by article 11 of this chapter, the commission may enter an order suspending for a period of not to exceed one year, denying or revoking the registration of a salesman if the commission finds that:
1. The application for registration of the salesman, or any statement, document
or other exhibit filed therewith, WITH THE APPLICATION or any supplement or
amendment thereto, TO THE APPLICATION is incomplete, inaccurate or misleading.
2. The salesman has violated this chapter or any rule or order of the commission
thereunder UNDER THIS CHAPTER.
3. The salesman has failed to file with the commission any record, report or other
information required under this chapter or any rule or order of the commission
thereunder, UNDER THIS CHAPTER or has refused to permit an examination into his
affairs.
4. The salesman is lacking in integrity, is not of good business reputation or is not qualified by training or experience.
5. The salesman is not employed by a registered dealer.
6. The salesman has been convicted within ten years preceding the date of filing
the application for registration as a salesman, or at anytime thereafter, of a felony or
misdemeanor involving a transaction in securities, or of which fraud is an essential
element, or arising out of the conduct of any business in securities.
7. The salesman is permanently or temporarily enjoined by order, judgment or decree of an administrative tribunal or a court of competent jurisdiction from engaging in or continuing any conduct or practice in connection with the sale or purchase of securities.
8. The salesman is subject to an order of an administrative tribunal, an SRO or the SEC denying, suspending or revoking membership or registration as a broker or dealer in securities or an investment adviser or investment adviser representative for at least six months.
9. The salesman has been guilty of any fraudulent act or practice in connection with the purchase or sale of securities.
10. The salesman has engaged in dishonest or unethical practices in the securities industry.
11. The salesman has failed to reasonably supervise salesmen under the salesman's supervisory control.
12. THE SALESMAN HAS ENGAGED IN DISHONEST OR UNETHICAL PRACTICES IN BUSINESS OR FINANCIAL MATTERS.
B. IN ADDITION TO DENYING, REVOKING OR SUSPENDING THE REGISTRATION, IF THE COMMISSION FINDS THAT A SALESMAN HAS ENGAGED IN AN ACT, PRACTICE OR TRANSACTION DESCRIBED IN SUBSECTION A, PARAGRAPH 10 OR 11, THE COMMISSION MAY DO ONE OR MORE OF THE FOLLOWING:
1. ASSESS ADMINISTRATIVE PENALTIES.
2. ORDER THE SALESMAN TO CEASE AND DESIST FROM ENGAGING IN THE ACT, PRACTICE OR TRANSACTION OR DOING ANY OTHER ACT IN FURTHERANCE OF THE ACT, PRACTICE OR TRANSACTION.
3. TAKE APPROPRIATE AFFIRMATIVE ACTION, AS PRESCRIBED BY THE COMMISSION, TO CORRECT THE CONDITIONS RESULTING FROM THE ACT, PRACTICE OR TRANSACTION, INCLUDING A REQUIREMENT TO PROVIDE RESTITUTION.
B. C. If the registration of a salesman is revoked or denied, that
salesman may not file with the commission an application for registration under this
chapter or for licensure under chapter 13 of this title for at least one year after the
date of the revocation or denial.
Sec. 12. Section 44-1974, Arizona Revised Statutes, is amended to read:
44-1974. Rehearings
Rehearings may be instituted or granted by the commission and shall be THE
COMMISSION MAY INSTITUTE OR GRANT REHEARINGS ON APPLICATION MADE WITHIN TWENTY CALENDAR
DAYS AFTER ENTRY OF AN ORDER OR DECISION. UNLESS OTHERWISE ORDERED, FILING AN APPLICATION
FOR REHEARING DOES NOT STAY THE COMMISSION'S DECISION OR ORDER. IF THE COMMISSION DOES
NOT GRANT A REHEARING WITHIN TWENTY CALENDAR DAYS, THE APPLICATION IS CONSIDERED TO BE
DENIED. REHEARINGS ARE subject to the provisions of this article.
Sec. 13. Section 44-2003, Arizona Revised Statutes, is amended to read:
44-2003. Joint and several liability; proportionate liability; determination of responsibility; uncollectible share; settlement discharge; limitation on actions; definitions
A. Subject to the provisions of this section, an action brought under section
44-2001, 44-2002 or 44-2032 may be brought against any person, including any dealer,
salesman or agent, who made, participated in or induced the unlawful sale or purchase,
and such persons shall be jointly and severally liable to the purchaser or seller
PERSON WHO IS entitled to maintain such action. No person shall be deemed to have
participated in any sale or purchase solely by reason of having acted in the ordinary
course of that person's professional capacity in connection with that sale or purchase.
B. Any covered person against whom a final judgment is entered in a private action is jointly and severally liable for damages only if the trier of fact determines that the covered person recklessly or knowingly committed a violation of this chapter.
C. A covered person against whom a final judgment is entered in a private action is liable solely for the portion of the judgment that corresponds to the percentage of responsibility of the covered person as prescribed in subsection D of this section. In any case in which a contractual relationship permits, a covered person who prevails in any private action may recover the attorney fees and costs of that covered person for the private action.
D. The court in a private action shall instruct the jury to answer special interrogatories, or if there is no jury, make findings, for each covered person and any other person the parties claim to have caused or contributed to the loss incurred by the plaintiff, including any person who has entered into a settlement with the plaintiff or plaintiffs, concerning each of the following:
1. Whether the person committed a violation of this chapter.
2. The percentage of responsibility of the person, measured as a percentage of the total fault of all persons who caused or contributed to the loss incurred by the plaintiff.
3. Whether the person knowingly committed a violation of this chapter.
E. The responses to the interrogatories or findings under subsection D of this section shall specify the total amount of damages that the plaintiff is entitled to recover and the percentage of responsibility of each covered person found to have caused or contributed to the loss incurred by the plaintiff or plaintiffs. In determining the percentage of responsibility under this section, the trier of fact shall consider both the nature and extent of:
1. The conduct of each covered person found to have caused or contributed to the loss incurred by the plaintiff or plaintiffs.
2. The causal relationship between the conduct of each covered person and the damages incurred by the plaintiff or plaintiffs.
F. Notwithstanding subsection C of this section, on a motion made within six months after a final judgment is entered in any private action, if the court determines that all or part of the share of the judgment of the covered person is not collectible against that covered person and is also not collectible against a covered person described in subsection B of this section, each covered person described in subsection C of this section is liable for the uncollectible share as follows:
1. Each covered person is jointly and severally liable for the uncollectible share if the plaintiff establishes that the plaintiff is an individual whose recoverable damages under the final judgment are greater than ten per cent of the net worth of the plaintiff, and the plaintiff's net worth is less than two hundred thousand dollars, excluding the value of the plaintiff's owned primary residence.
2. With respect to any plaintiff not described in paragraph 1 of this subsection, each covered person is liable for the uncollectible share in proportion to the percentage of responsibility of that covered person, except that the total liability of a covered person under this subsection may not exceed fifty per cent of the proportionate share of that covered person, as determined under subsection E of this section.
G. For purposes of subsection F of this section, net worth is determined as of the date immediately preceding the date of the purchase or sale by the plaintiff of the security that is the subject of the action and is equal to the fair market value of assets, minus liabilities, including the net value of the plaintiff's investments in real and personal property and personal residences.
H. The total payments required pursuant to subsection F of this section shall not exceed the amount of the uncollectible share. A covered person against whom judgment is not collectible is subject to contribution and to any continuing liability to the plaintiff on the judgment.
I. To the extent that a covered person is required to make an additional payment pursuant to subsection F of this section, the covered person may recover contribution from any of the following or any combination of the following:
1. The covered person originally liable to make the payment.
2. Any covered person liable jointly and severally pursuant to subsection B of this section.
3. Any covered person who is held proportionately liable pursuant to this section, who is liable to make the same payment and who has paid less than the person's proportionate share of that payment.
4. Any other person WHO IS responsible for the conduct giving rise to the
payment that AND WHO would have been liable to make the same payment.
J. The standard for allocation of damages under subsections B, C and D of this section and the procedure for reallocation of uncollectible shares under subsection F of this section shall not be disclosed to members of the jury.
K. If a covered person settles any private action at any time before a final verdict or judgment, the court shall enter an order discharging the covered person from all claims for contribution brought by other persons. On entry of the settlement by the court, the court shall enter a bar order constituting the final discharge of all obligations to the plaintiff of the settling covered person arising out of the action. The order bars all future claims for contribution arising out of the action by:
1. Any person against the settling covered person.
2. The settling covered person against any person, other than a person whose liability has been extinguished by the settlement of the settling covered person.
L. If a covered person enters into a settlement with the plaintiff before a final verdict or judgment, the verdict or judgment shall be reduced by the greater of either:
1. The amount that corresponds to the percentage of responsibility of that covered person.
2. The amount paid to the plaintiff by that covered person.
M. Except as provided in subsection K of this section, a covered person who becomes jointly and severally liable for damages in any private action may recover contribution from any other person who, if joined in the original action, would have been liable for the same damages. A claim for contribution shall be determined based on the percentage of responsibility of the claimant and of each person against whom a claim for contribution is made.
N. In any private action determining liability, an action for contribution shall be brought within six months after the entry of a final, nonappealable judgment in the action, except that an action for contribution brought by a covered person who was required to make an additional payment pursuant to subsection F of this section may be brought within six months after the date on which the payment was made.
O. For purposes of this section, reckless conduct by a covered person does not constitute a knowing violation of this chapter by the covered person.
P. For the purposes of this section:
1. "Covered person" means a defendant in any private action arising under sections 44-1991 and 44-1992 or a defendant who is an outside director in a private action arising under section 44-1997.
2. "Knowingly committed a violation of this chapter" means either:
(a) In an action that is based on an untrue statement of material fact or omission of a material fact necessary to make the statement not misleading, the covered person makes an untrue statement of a material fact with actual knowledge that the representation is false or omits the statement of a fact necessary in order to make the statement made not misleading, with actual knowledge that, as a result of the omission, one of the material representations of the covered person is false and other persons are likely to reasonably rely on that misrepresentation or omission.
(b) In an action that is based on any conduct that is not described in subdivision (a), the covered person engages in conduct with actual knowledge of the facts and circumstances that make the conduct of that covered person a violation of this chapter.
Sec. 14. Section 44-2031, Arizona Revised Statutes, is amended to read:
44-2031. Jurisdiction and venue of offenses and actions; joinder of spouse
A. The superior court in this state shall have jurisdiction of offenses and
OVER violations of this chapter, and the rules, regulations and
orders of the commission thereunder, UNDER THIS CHAPTER and of all actions
brought to enforce any liability or duty created under this chapter, except actions or
proceedings brought under section 44-2032, paragraph 2, 3 or 4 or appeals filed under
article 12 of this chapter, of OVER which the superior court in Maricopa county
shall have exclusive jurisdiction.
B. Any action authorized by this chapter may be brought in the county wherein
IN WHICH the defendant is found, or is an inhabitant or transacts
business, or in the county where the transaction took place, and in such cases, process
may be served in any other county of IN which the defendant is an inhabitant or
where IN WHICH the defendant is found.
C. THE COMMISSION MAY JOIN THE SPOUSE IN ANY ACTION AUTHORIZED BY THIS CHAPTER TO DETERMINE THE LIABILITY OF THE MARITAL COMMUNITY.
Sec. 15. Section 44-2032, Arizona Revised Statutes, is amended to read:
44-2032. Cease and desist orders; civil penalty; injunctions; civil restitution; prosecutions for violations
When IF it appears to the commission, either on complaint or otherwise,
that any person has engaged in, is engaging in, or is about to engage in any act,
practice or transaction that constitutes a violation of this chapter, or any rule or
order of the commission thereunder UNDER THIS CHAPTER, the commission may, in
its discretion:
1. Issue an order directing such person to cease and desist from engaging in the act, practice or transaction, or doing any other act in furtherance of the act, practice or transaction, and to take appropriate affirmative action within a reasonable period of time, as prescribed by the commission, to correct the conditions resulting from the act, practice or transaction including, without limitation, a requirement to provide restitution as prescribed by rules of the commission. IF A PERSON FAILS TO COMPLY WITH AN ORDER ISSUED UNDER THIS PARAGRAPH, THE SUPERIOR COURT IN MARICOPA COUNTY, ON APPLICATION BY THE COMMISSION SHALL:
(a) ISSUE AN ORDER TO SHOW CAUSE WHY THE PERSON HAS NOT COMPLIED WITH THE COMMISSION'S ORDER. ON A SHOWING THAT THE PERSON HAS VIOLATED THE COMMISSION'S ORDER, THE COURT MAY EXERCISE ITS CONTEMPT POWERS AND IMPOSE A CIVIL PENALTY OF NOT MORE THAN TWENTY THOUSAND DOLLARS FOR EACH VIOLATION AS THE COURT CONSIDERS TO BE JUST AND PROPER.
(b) AWARD REASONABLE COSTS, INCLUDING ATTORNEY FEES, TO THE COMMISSION, UNLESS OTHER CIRCUMSTANCES MAKE AN AWARD OF COSTS UNJUST. ANY COSTS, INCLUDING ATTORNEY FEES, COLLECTED PURSUANT TO THIS PARAGRAPH SHALL BE DEPOSITED, PURSUANT TO SECTIONS 35-146 AND 35-147, IN THE STATE GENERAL FUND.
2. Apply to the superior court in Maricopa county or any federal court for an
injunction restraining the person from the violation, and on a showing by the commission
that the person has engaged in, is engaging in or is about to engage in an act, practice
or transaction in violation of this chapter or any rule or order of the commission, a
temporary restraining order, preliminary injunction, or permanent injunction shall
be granted without bond. Process in those actions may be served on the defendant in any
county of this state in which the defendant transacts business or is found.
3. Apply to the superior court in Maricopa county or any federal court for an order restoring to any person in interest any monies or property, real or personal, that may have been acquired or transferred in violation of this chapter.
4. PETITION THE SUPERIOR COURT IN MARICOPA COUNTY OR transmit any evidence available concerning the act, practice or transaction to the attorney general and the attorney general may petition the superior court in Maricopa county for the appointment of a conservator to reorganize the affairs of, or a receiver to wind up the affairs of, the violator. Process in those actions may be served on the defendant in any county in this state where the defendant transacts business or may be found.
5. Transmit any evidence available concerning the act, practice or transaction to A COUNTY ATTORNEY, the attorney general OR THE UNITED STATES ATTORNEY who may, with or without the transmittal, directly institute or cause to be instituted any criminal proceedings as the evidence warrants.
Sec. 16. Section 44-2054, Arizona Revised Statutes, is amended to read:
44-2054. Loans from the commerce and economic development commission fund; repayment; allocation
A. The commerce and economic development commission, on request of the
corporation commission, shall make one or more loans, if it believes the loans are
prudent, from the commerce and economic development commission fund established by
section 41-1505.10 to any private entity for the purpose of establishing an exchange
located in this state, subsequent expansion or improvement of the exchange or funding any
operating deficits. Monies borrowed from the commerce and economic development commission
may be used for the purpose of developing an exchange, including acquiring necessary
computer hardware and software and telecommunications equipment, renting space, hiring
staff, obtaining registration of an exchange with the SEC, funding initial operating
deficits, acquiring listings and marketing the exchange's services and all other
necessary or appropriate purposes for creation and operation of a securities exchange.
The commerce and economic development commission may impose conditions and restrictions
on the loan as it deems necessary and in the public interest.
B. Revenues of an exchange receiving one or more loans under subsection A of this
section, after payment of all operating expenses, shall be used to repay loans from the
commerce and economic development commission fund. All loan repayments and fees collected
pursuant to section 44-1843, subsection B, section 44-1861, subsections C and E, section
44-1892, paragraph 3 and section 44-3324, subsection H, paragraph 2 shall be used by the
commerce and economic development commission for the purposes prescribed by section
41-1505.06, subsection A, paragraph 5 or subsection A of this section, except that each
year on January 2, five hundred thousand dollars shall be transferred from the commerce
and economic development commission fund to the securities regulatory and enforcement
fund established by section 44-2039 for the purpose of enforcing this chapter and chapter
13 of this title and regulating the exchange and operating the public reference rooms
established by section 44-2055. The director of the securities division of the
corporation commission shall abstain from all votes of the commerce and economic
development commission relating to loans to an entity for the purpose of establishing a
securities exchange.
Sec. 17. Section 44-3101, Arizona Revised Statutes, is amended to read:
44-3101. Definitions
In this chapter, unless the context otherwise requires:
1. "Closed-end company" means any management company other than an open-end company or unit investment trust.
2. "Depository institution" means a bank, savings and loan association or trust company whose business is supervised and regulated by an agency of this state or the United States, or an employee, as defined in title 10, chapter 1, of any such bank, savings and loan association or trust company while acting within the scope of the employee's employment.
3. "Federal covered adviser" means an investment adviser registered under the investment advisers act of 1940.
4. "IARD" means the investment adviser registration depository operated by the national association of securities dealers.
5. "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 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. Investment adviser 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. Investment adviser does not include:
(a) An investment adviser representative.
(b) A depository institution.
(c) A lawyer, law firm, certified public accountant or accounting firm whose performance of the investment advisory services is solely incidental to the practice of the person's profession or who does not do any of the following:
(i) Exercise investment discretion with respect to the assets of clients or maintain custody of the assets of clients for the purpose of investing the assets, except if the person is acting in a bona fide fiduciary capacity such as an executor, trustee, personal representative, estate or trust agent, guardian or conservator.
(ii) Accept or receive directly or indirectly any commission, fee or other remuneration contingent on the purchase or sale of any specific security by a client of the person.
(iii) Give advice on the purchase or sale of specific securities other than advice about specific securities that is based on financial statement analysis or tax considerations that are reasonably related to and in connection with the person's profession.
(d) A publisher, employee or columnist of any newspaper, news column, newsletter, news magazine or business or financial publication or service, whether communicated in hard copy form, 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.
(e) An insurance company or agent INSURANCE PRODUCER that is licensed or
authorized by the department of insurance to transact the business of insurance,
including the sale of annuities, whose performance of the investment advisory services is
solely incidental to the conduct of business as an insurance company or agent
INSURANCE PRODUCER and that receives no special compensation for providing
investment advisory services.
(f) A real estate salesperson or real estate broker who is licensed or authorized by the state real estate department to transact the business of real estate, whose performance as an investment adviser is solely incidental to the conduct of the individual's business as a broker or salesman and who receives no special compensation for providing investment advisory services.
(g) Any officer, director, partner or employee of an entity engaged in selling interest in entities that invest in real property, including partnerships, corporations or sole proprietorships, if such transactions are otherwise subject to the securities laws of the United States or this state.
(h) Mortgage brokers or mortgage bankers who are licensed by the state banking department to transact the business of a mortgage broker or mortgage banker, and their employees, whose performance of any investment advisory service is solely incidental to the conduct of the business of a mortgage broker or mortgage banker and who receives no special compensation for providing investment advisory services.
6. "Investment adviser representative" means any partner, officer or director of an investment adviser, any individual who occupies a status or performs functions similar to a partner, officer or director of an investment adviser or any other individual who is employed by or associated with an investment adviser, except clerical or ministerial personnel, and who does any of the following:
(a) Makes any recommendations or otherwise renders advice regarding securities.
(b) Manages accounts or portfolios of clients.
(c) Determines which recommendation or advice regarding securities should be given to a client if the individual is a member of the investment adviser's investment committee that determines general investment advice to be given to clients or the individual determines general client advice if the investment adviser has no investment committee, except that if an investment adviser has more than five individuals who make recommendations or give advice, only the supervisors of those individuals are investment adviser representatives.
(d) Solicits, offers or negotiates for the sale of or sells investment advisory services.
(e) Directly supervises employees who perform any of the acts described in this paragraph.
7. "Investment advisers act of 1940" means the act of Congress known as the investment advisers act of 1940 (15 United States Code section 80b).
8. "Investment company" means any company that is registered under the investment company act of 1940.
9. "Investment company act of 1940" means the act of Congress known as the investment company act of 1940 (15 United States Code section 80a).
10. "Licensed investment adviser" means an investment adviser licensed under this chapter.
11. "Licensed investment adviser representative" means an investment adviser representative licensed under this chapter.
12. "Open-end company" means a management company that is offering for sale or has outstanding any redeemable security of which it is the issuer.
13. "Solely incidental to the practice of the person's profession" and "solely incidental to the conduct of the person's business" means that the person does not hold itself out to the public as a provider of investment advisory services, the investment advisory services are rendered in connection with and reasonably related to the professional services or business transactions being provided or consummated and the fee charged for the investment advisory services is based on the same factors used by the person to determine the fees for the person's professional or business services.
14. "Unit investment trust" means an investment company that is organized under a trust indenture, contract of custodianship or agency or similar instrument, that does not have a board of directors and that issues only redeemable securities, each of which represents an undivided interest in a unit of specified securities, but does not include a voting trust.
Sec. 18. Section 44-3152, Arizona Revised Statutes, is amended to read:
44-3152. Exemption of certain investment advisers and investment adviser representatives
A. An investment adviser is not required to be licensed or make a notice filing under this chapter if that investment adviser does not have a place of business in this state and either:
1. Its only clients in this state are investment companies, other investment advisers, dealers, depository institutions, insurance companies, employee benefit plans with assets of not less than one million dollars and governmental agencies or instrumentalities, whether acting for themselves or as trustees with investment control.
2. During the preceding twelve months it had fewer than six clients who are residents of this state other than those clients specified in paragraph 1.
B. If the commission determines that it is not necessary for any investment adviser or class of investment advisers or investment adviser representative or class of investment adviser representatives to be licensed to protect the public interest because of the special characteristics of the securities or transactions in which the investment adviser or investment adviser representative may be involved, the commission may by rule or order provide limited licensure requirements or exempt these persons from licensure under this article.
C. This chapter does not apply to any A dealer or salesman that is
registered with the commission pursuant to chapter 12, article 9 of this title IS NOT
REQUIRED TO BE LICENSED, MAKE A NOTICE FILING OR COMPLY WITH REPORTING REQUIREMENTS UNDER
THIS ARTICLE.
D. The authorized use of the designation "chartered financial consultant" by an
insurance agent PRODUCER licensed by the department of insurance does not in
and of itself constitute holding oneself out to the public as an investment adviser or
require a license under this article.
Sec. 19. Section 44-3158, Arizona Revised Statutes, is amended to read:
44-3158. Expiration, renewal or transfer of licensure; automatic suspension
A. All licenses expire on December 31 of each year unless renewed before expiration BY PAYMENT THROUGH THE IARD OF THE FEES PRESCRIBED BY SECTION 44-3181. IF THE IARD DOES NOT PROVIDE FOR RECEIPT OF A FILING, THE FILING MAY BE MADE WITH THE COMMISSION BY MAIL OR ANY OTHER REASONABLE METHOD THAT IS ACCEPTABLE TO THE COMMISSION.
B. An investment adviser representative may transfer that investment adviser representative's license to an investment adviser that is either licensed by the commission or that has made a notice filing with the commission by filing a completed application for licensure and remitting a transfer fee to the commission through the IARD. If the IARD does not provide for receipt of a filing, the filing may be made with the commission by mail or any other reasonable method that is acceptable to the commission. The license of an investment adviser representative will automatically be suspended from the time of termination of employment with an investment adviser until the investment adviser representative is employed by another licensed or federal covered adviser, the director is notified of the employment by the investment adviser in writing and the investment adviser is notified of approval of the licensure by the director by mail, through the IARD or by any other reasonable method established by the commission or the investment adviser representative has complied with all requirements in accordance with a temporary investment adviser representative transfer program. The commission may adopt rules providing for temporary transfer of licensure of investment adviser representatives.
Sec. 20. Section 44-3201, Arizona Revised Statutes, is amended to read:
44-3201. Grounds for denial, revocation or suspension of license; administrative remedies
A. After a hearing or notice and an opportunity for a hearing as provided in article 7 of this chapter, the commission may enter an order suspending for a period of not more than one year, denying or revoking the license of an investment adviser or investment adviser representative if the commission finds that it is in the public interest and any one or a combination of the following:
1. The application for licensure of the investment adviser or investment adviser representative, any financial statement, document or other exhibit filed with an application or any supplement or amendment to an application is incomplete, inaccurate or misleading.
2. The investment adviser is insolvent or is in an unsound financial condition.
3. The investment adviser or investment adviser representative violates this chapter or any rule or order of the commission adopted or issued under this chapter.
4. The investment adviser or investment adviser representative fails to file with the commission any record, report, financial statement or other information required under this chapter or any rule or order of the commission adopted or issued under this chapter or refuses to permit an examination pursuant to section 44-3132.
5. The investment adviser knowingly retains an unlicensed investment adviser representative who is required to be licensed under this chapter.
6. The investment adviser permits any person to render investment advice in violation of this chapter.
7. The investment adviser representative is not employed by a licensed or federal covered adviser.
8. The investment adviser or investment adviser representative has been convicted
within ten years preceding the date of filing an application for licensure as an
investment adviser or investment adviser representative, or at any time after the date of
filing an application, of a felony or misdemeanor involving a transaction in
securities, or of which fraud is an essential element or arising out of the
conduct of any business involving securities or any aspect of the securities business.
9. The investment adviser or investment adviser representative is permanently or temporarily enjoined by order, judgment or decree of an administrative tribunal or a court of competent jurisdiction from engaging in or continuing any conduct or practice involving a violation of any federal or state securities laws or a violation of any other regulatory licensing requirements.
10. The investment adviser or investment adviser representative is subject to an order of an administrative tribunal, an SRO or the SEC denying, revoking or suspending membership, licensure or registration as a broker or dealer in securities or as an investment adviser or investment adviser representative for at least six months.
11. The investment adviser or investment adviser representative has been found civilly or criminally liable, by any court of competent jurisdiction or other governmental authority in a civil or criminal action not subsequently reversed, suspended or vacated, for any fraudulent act or practice in connection with any aspect of the securities business.
12. The investment adviser fails to reasonably supervise its investment adviser representatives or employees to assure their compliance with this chapter.
13. The investment adviser or investment adviser representative engages in dishonest or unethical practices in the securities industry.
14. THE INVESTMENT ADVISER OR INVESTMENT ADVISER REPRESENTATIVE ENGAGES IN DISHONEST OR UNETHICAL PRACTICES IN BUSINESS OR FINANCIAL MATTERS.
B. IN ADDITION TO DENYING, REVOKING OR SUSPENDING THE LICENSE, IF THE COMMISSION FINDS THAT AN INVESTMENT ADVISER OR INVESTMENT ADVISER REPRESENTATIVE HAS ENGAGED IN AN ACT, PRACTICE OR TRANSACTION DESCRIBED IN SUBSECTION A, PARAGRAPH 6, 12 OR 13, THE COMMISSION MAY DO ONE OR MORE OF THE FOLLOWING:
1. ASSESS ADMINISTRATIVE PENALTIES.
2. ORDER THE INVESTMENT ADVISER OR INVESTMENT ADVISER REPRESENTATIVE TO CEASE AND DESIST FROM ENGAGING IN THE ACT, PRACTICE OR TRANSACTION OR DOING ANY OTHER ACT IN FURTHERANCE OF THE ACT, PRACTICE OR TRANSACTION.
3. TAKE APPROPRIATE AFFIRMATIVE ACTION, AS PRESCRIBED BY THE COMMISSION, TO CORRECT THE CONDITIONS RESULTING FROM THE ACT, PRACTICE OR TRANSACTION, INCLUDING A REQUIREMENT TO PROVIDE RESTITUTION.
B. C. If the investment adviser is a partnership, corporation,
unincorporated association, limited liability company or trust, it is sufficient cause
for denial of licensure if a member of the partnership, an officer or director of the
corporation or unincorporated association, a manager of a limited liability company, a
trustee or any other fiduciary of a trust or a person controlling, controlled by or under
common control with the investment adviser has been found civilly or criminally liable,
by any court of competent jurisdiction or other governmental authority in a civil or
criminal action not subsequently reversed, suspended or vacated, for any act or omission
that would be sufficient grounds for denying the licensure of an individual investment
adviser.
C. D. If the license of an investment adviser or investment adviser
representative is revoked or denied, that investment adviser or investment adviser
representative may not file with the commission for licensure under this chapter or for
registration under chapter 12 of this title for at least one year from the date of the
revocation or denial.
Sec. 21. Section 44-3214, Arizona Revised Statutes, is amended to read:
44-3214. Rehearings
The commission may institute or grant rehearings ON APPLICATION MADE WITHIN TWENTY CALENDAR DAYS AFTER ENTRY OF AN ORDER OR DECISION. UNLESS OTHERWISE ORDERED, FILING AN APPLICATION FOR REHEARING DOES NOT STAY THE COMMISSION'S DECISION OR ORDER. IF THE COMMISSION DOES NOT GRANT A REHEARING WITHIN TWENTY CALENDAR DAYS, THE APPLICATION IS CONSIDERED TO BE DENIED. Rehearings are subject to this article.
Sec. 22. Section 44-3291, Arizona Revised Statutes, is amended to read:
44-3291. Jurisdiction and venue of offenses and actions; joinder of spouse
A. The superior court has jurisdiction over violations of this chapter, the rules and orders of the commission adopted or issued under this chapter and all actions brought to enforce any liability or duty created under this chapter, except actions or proceedings brought under section 44-3292, paragraph 2, 3 or 4 or appeals filed under article 8 of this chapter, over which the superior court in Maricopa county has exclusive jurisdiction.
B. Any action authorized by this chapter may be brought in the county in which the defendant is found, is an inhabitant or transacts business or in the county in which the transaction took place. Process may be served on any defendant in any county of this state in which the defendant is an inhabitant or in which the defendant is found.
C. THE COMMISSION MAY JOIN THE SPOUSE IN ANY ACTION AUTHORIZED BY THIS CHAPTER TO DETERMINE THE LIABILITY OF THE MARITAL COMMUNITY.
Sec. 23. Section 44-3292, Arizona Revised Statutes, is amended to read:
44-3292. Cease and desist orders; injunctions; civil restitution; prosecutions for violations
If it appears to the commission, either on complaint or otherwise, that any person has engaged in, is engaging in or is about to engage in any act, practice or transaction that constitutes a violation of this chapter or any rule or order of the commission adopted or issued under this chapter, the commission may:
1. Issue an order directing the person to cease and desist from engaging in the act, practice or transaction, or doing any act in furtherance of the act, practice or transaction, and to take appropriate affirmative action within a reasonable period of time, as prescribed by the commission, to correct the conditions resulting from the act, practice or transaction including a requirement to provide restitution as prescribed by rules of the commission.
2. Apply to the superior court in Maricopa county or any federal court for an injunction restraining the person from any violation, and on a showing by the commission that the person has engaged in, is engaging in or is about to engage in an act, practice or transaction in violation of this chapter or any rule or order of the commission, a temporary restraining order, preliminary injunction or permanent injunction shall be granted without bond. Process in these actions may be served on the defendant in any county of this state in which the defendant transacts business or is found.
3. Apply to the superior court in Maricopa county or any federal court for an order restoring to any person in interest any monies or property, real or personal, that may have been acquired or transferred in violation of this chapter.
4. PETITION THE SUPERIOR COURT IN MARICOPA COUNTY OR transmit any evidence
available concerning the act, practice or transaction to the attorney general. On
receipt of the evidence, AND the attorney general may petition the superior court
in Maricopa county for the appointment of a conservator to reorganize the affairs of, or
a receiver to wind up the affairs of, the violator. Process in these actions may be
served on the defendant in any county in this state in which the defendant transacts
business or is found.
5. Transmit any evidence available concerning such act, practice or transaction to A COUNTY ATTORNEY, the attorney general OR THE UNITED STATES ATTORNEY who, with or without such transmittal, may directly institute or cause to be instituted such criminal proceedings as the evidence warrants.