Senate File 2275 - Introduced SENATE FILE 2275 BY COMMITTEE ON COMMERCE (SUCCESSOR TO SSB 3129) (COMPANION TO HF 2239 BY COMMITTEE ON COMMERCE) A BILL FOR An Act relating to noninsurance business transactions regulated 1 by the insurance division of the department of commerce, 2 by providing for regulated securities and exchanges, and 3 financial records associated with the sale of cemetery and 4 funeral merchandise and services. 5 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 6 TLSB 5277SV (2) 87 da/rn

S.F. 2275 DIVISION I 1 IOWA UNIFORM SECURITIES ACT 2 Section 1. Section 502.202, subsection 2, paragraph e, 3 subparagraph (1), Code 2018, is amended to read as follows: 4 (1) The issuer of the security has a class of equity 5 securities listed on a national securities exchange registered 6 under section 6 of the Securities Exchange Act of 1934 7 or designated for trading on the national association of 8 securities dealers automated quotation system . 9 Sec. 2. Section 502.202, subsection 24, paragraph a, Code 10 2018, is amended to read as follows: 11 a. Definitions. As used in this subsection , unless the 12 context otherwise requires: 13 (1) “Intermediary” means a any of the following: 14 (a) A broker-dealer that is subject to the registration 15 requirements of section 502.401 and that facilitates the offer 16 and sale of securities by issuers to investors through an 17 internet-based system that is open to and accessible by the 18 general public. 19 (b) “Intermediary” also means an entity registered with 20 the administrator as an Iowa crowdfunding portal. A business 21 entity that is all of the following: 22 (i) A funding portal that is registered with the securities 23 and exchange commission pursuant to the Securities Act of 1933, 24 including as provided in 15 U.S.C. §77d-1. 25 (ii) A member of the financial industry regulatory 26 authority, inc. pursuant to the Securities Exchange Act of 27 1934, including as provided in 15 U.S.C. §§78c and 78o-3, and 28 17 C.F.R. §227.400. 29 (c) A business entity that qualifies as an Iowa crowdfunding 30 portal by meeting all of the following requirements: 31 (i) Is registered with the administrator as required by the 32 administrator. 33 (ii) Is engaged in intrastate crowdfunding offers and sales 34 of exempt securities in this state through an internet site. 35 -1- LSB 5277SV (2) 87 da/rn 1/ 8

S.F. 2275 (iii) Does not operate or facilitate a secondary market in 1 securities. 2 (2) “Intrastate crowdfunding” means the offer or sale of 3 a security by an issuer in a transaction that is available 4 for purchase only by an Iowa residents and by resident or a 5 business organizations located in, and organized and registered 6 under the laws of, entity having its principal place of 7 business in this state. 8 (3) “Iowa crowdfunding portal” means an entity incorporated 9 or organized under the laws of this state, authorized to do 10 business in this state, and engaged exclusively in intrastate 11 crowdfunding offers and sales of exempt securities in this 12 state through an internet site and which does not operate or 13 facilitate a secondary market in securities. 14 Sec. 3. Section 502.202, subsection 24, paragraph c, Code 15 2018, is amended to read as follows: 16 c. Aggregate sales limit. The aggregate amount of 17 securities sold to all investors by the issuer during the 18 twelve-month period preceding the date of the offer or sale, 19 including any amount sold in reliance upon the exemption in 20 this subsection , shall not exceed one five million dollars 21 other than either of the following: 22 (1) Securities sold to Iowa resident institutional 23 investors. 24 (2) Securities sold to the Iowa resident issuer’s 25 management. 26 Sec. 4. Section 502.302, subsection 3, Code 2018, is amended 27 to read as follows: 28 3. Notice filings for federal covered securities under 29 section 18(b)(4)(D) 18(b)(4)(F) . With respect to a security 30 that is a federal covered security under section 18(b)(4)(D) 31 18(b)(4)(F) of the Securities Act of 1933, 15 U.S.C. 32 §77r(b)(4)(D) §77r(b)(4)(F) , a rule under this chapter may 33 require a notice filing by or on behalf of an issuer to include 34 a copy of form D, including the appendix, as promulgated by the 35 -2- LSB 5277SV (2) 87 da/rn 2/ 8

S.F. 2275 securities and exchange commission, and a consent to service 1 of process complying with section 502.611 signed by the issuer 2 not later than fifteen days after the first sale of the federal 3 covered security in this state and the payment of a fee of one 4 hundred dollars; and the payment of a fee of two hundred fifty 5 dollars for any late filing. 6 Sec. 5. Section 502.406, subsection 5, Code 2018, is amended 7 to read as follows: 8 5. Additional conditions or waivers. A rule adopted 9 or order issued under this chapter may impose such other 10 conditions, not inconsistent with the National Securities 11 Markets Improvement Act of 1996. An order or rule issued 12 under this chapter may waive, in whole or in part, specific 13 requirements in connection with registration as are in the 14 public interest and for the protection of investors. 15 DIVISION II 16 VIATICAL SETTLEMENT ACT 17 Sec. 6. Section 508E.15, subsection 4, paragraph a, 18 subparagraph (4), Code 2018, is amended to read as follows: 19 (4) The national association of insurance commissioners; 20 the national association of securities dealers the financial 21 industry regulatory authority, inc. ; the North American 22 securities administrators association; their employees, agents, 23 or representatives; or other regulatory body overseeing life 24 insurance, viatical settlements, securities, or investment 25 fraud. 26 DIVISION III 27 IOWA CEMETERY AND FUNERAL MERCHANDISE AND FUNERAL SERVICES ACT 28 Sec. 7. Section 523A.207, Code 2018, is amended to read as 29 follows: 30 523A.207 Audits Report by certified public accountants —— 31 penalty penalties —— waiver —— confidentiality . 32 1. A purchase agreement shall not be sold or transferred, 33 as part of the sale of a business or the assets of a business, 34 until an audit has been performed by a certified public 35 -3- LSB 5277SV (2) 87 da/rn 3/ 8

S.F. 2275 accountant has completed an agreed-upon procedures engagement 1 in accordance with the attestation standards established by the 2 American institute of certified public accountants and a report 3 is filed with the commissioner that expresses the auditor’s 4 opinion of factual findings and results of applying the 5 agreed-upon procedures that verifies the adequacy or inadequacy 6 of funding related to the purchase agreements to be sold or 7 transferred. 8 2. If the buyer of a purchase agreement sold or transferred 9 as part of the sale of a business or the assets of a business, 10 fails to file such an audit a report described in subsection 1 , 11 the commissioner shall may suspend the preneed seller’s license 12 of the buyer and the preneed sales license of any sales agent 13 in the employ of the buyer until the audit report is filed. In 14 addition, the commissioner shall may assess a penalty against 15 the buyer in an amount up to one hundred dollars for each 16 day that the audit report remains unfiled. The commissioner 17 shall allow a thirty-day grace period after the date that a 18 purchase agreement is sold or transferred before suspension 19 of a license or assessment of a penalty for failure to file 20 an audit pursuant to this subsection the report . Upon good 21 cause, the commissioner may issue an order waiving the report 22 requirements. 23 2. 3. All records maintained by the commissioner under 24 this section shall be confidential pursuant to section 22.7, 25 subsection 58 , and shall not be made available for inspection 26 or copying except upon approval of the commissioner or the 27 attorney general, or except when sought by the preneed seller 28 to whom the records relate. Such records shall be privileged 29 and confidential in any judicial or administrative proceeding 30 except any of the following: 31 a. An action commenced by the commissioner. 32 b. An administrative proceeding brought by the insurance 33 division. 34 c. An action or proceeding which arises out of the criminal 35 -4- LSB 5277SV (2) 87 da/rn 4/ 8

S.F. 2275 provisions of the laws of this state or of the United States. 1 d. An action brought by the insurance division or 2 the attorney general to recover moneys for embezzlement, 3 misappropriation, or misuse of trust funds. 4 EXPLANATION 5 The inclusion of this explanation does not constitute agreement with 6 the explanation’s substance by the members of the general assembly. 7 GENERAL. This bill provides for the regulation of a number 8 of noninsurance business transactions and associated entities 9 by the insurance division (division) of the department of 10 commerce. 11 BLUE SKY LAW —— GENERAL. The amended provisions include 12 sections in the “Iowa Uniform Securities Act” which is 13 sometimes referred to as the “Blue Sky Law (Code chapter 14 502). A person is prohibited from offering to sell or selling 15 a security in this state unless it is registered with the 16 division, exempt from registration, or a federal covered 17 security regulated under federal law (Code section 502.301). 18 The bill amends provisions that are closely connected to 19 two federal statutes: the “Securities Act of 1933” and the 20 “Securities Exchange Act of 1934” (for citations, see Code 21 section 502.103) as administered by the federal securities and 22 exchange commission (SEC). The SEC works in close cooperation 23 with several private entities including the financial industry 24 regulatory authority (FINRA). 25 BLUE SKY LAW —— CHANGE IN ORGANIZATION. The bill strikes 26 references to the national association of securities 27 dealers (NASD) which was a self-regulatory organization of 28 the securities industry responsible for the operation and 29 regulation of the NASDAQ stock market and over-the-counter 30 markets. It has been succeeded by FINRA, a not-for-profit 31 organization recognized by federal statute to regulate 32 broker-dealers engaged in transactions involving the purchase 33 and sale of securities for their own account or for the account 34 of others. 35 -5- LSB 5277SV (2) 87 da/rn 5/ 8

S.F. 2275 BLUE SKY LAW —— INTRASTATE CROWDFUNDING —— BILL’S 1 PROVISIONS. The bill amends provisions (Code section 2 502.202(24)) that currently exempt intrastate crowdfunding from 3 certain Blue Sky Law requirements, including the registration 4 of securities (Code sections 502.301 and 502.306) and the 5 filing of sales and advertising literature (Code section 6 502.504). 7 The bill revises the definition of “intermediary” to include 8 a business entity that satisfies two requirements: (1) be 9 registered with the SEC as a funding portal and (2) be a member 10 of FINRA (17 C.F.R. §227.400). Under federal law, a funding 11 portal cannot offer investment advice or recommendations or 12 solicit purchases or sales of securities, or handle investor 13 assets (17 U.S.C. §78c(a)(80)). 14 Currently, in Iowa, an intermediary is limited to either 15 a broker-dealer registered with the division (Code section 16 502.401) or a business entity, such as a corporation, 17 qualifying as an “Iowa crowdfunding portal” which means 18 it: (1) is registered with the division, (2) is organized 19 under state law, (3) is engaged exclusively in intrastate 20 crowdfunding offers and sales of exempt securities in this 21 state through an internet site, and (4) does not operate or 22 facilitate a secondary market in securities. The bill provides 23 that an Iowa crowdfunding portal would no longer be required to 24 be organized or authorized to do business in this state or be 25 engaged in crowdfunding exclusively in this state. Finally, 26 the bill increases the aggregate amount of securities that 27 could be sold to investors by an issuer acting through an 28 intermediary during the 12 months prior to the date of offer or 29 sale from $1 million to $5 million. 30 BLUE SKY LAW —— INTRASTATE CROWDFUNDING. “Crowdfunding” 31 refers to the practice of raising capital to finance ventures 32 (e.g., start-ups and early stage companies) by attracting 33 investments generally from small contributors purchasing an 34 equity position (e.g., the purchase of stock) via the internet. 35 -6- LSB 5277SV (2) 87 da/rn 6/ 8

S.F. 2275 “Intrastate crowdfunding” refers to a securities transaction 1 that is: (1) available for purchase only by an Iowa resident 2 or business entity having its principal place of business in 3 this state and (2) made via an intermediary’s internet site. 4 The bill requires the business entity maintain its principal 5 place of business in this state. 6 BLUE SKY LAW —— REGULATION OF NOTICE FILINGS AND FEES. The 7 bill updates a statutory citation that provides that the SEC 8 form “D”, a notice of an exempt offering (17 C.F.R. §239.500), 9 and an associated fee are required to be filed with the 10 division. The federal “National Securities Markets Improvement 11 Act of 1996” (Pub. L. No. 104-290) amended the Securities 12 Act of 1933, by creating a class of securities referred 13 to as “covered securities” which when sold by a licensed 14 broker-dealer is no longer subject to state registration but 15 may be subject to notice filings at the state level so long as 16 the state’s requirements are substantially the same as those in 17 effect on September 1, 1996 (15 U.S.C. §77r). 18 VIATICAL SETTLEMENTS —— CHANGE IN ORGANIZATION. The bill 19 amends a provision referring to circumstances in which a 20 person may be immune from liability from an offense involving 21 a fraudulent viatical settlement act, if the person acting in 22 good faith sends or receives information from NASD. The bill 23 changes that organization to FINRA. 24 AUDIT REQUIREMENTS ASSOCIATED WITH THE SALE OF CEMETERY 25 AND FUNERAL MERCHANDISE AND SERVICES. The bill amends the 26 “Iowa Cemetery and Funeral Merchandise and Funeral Services 27 Act” (Code chapter 523A) which regulates business entities and 28 sales agents offering to provide cemetery merchandise, funeral 29 merchandise, or funeral services upon an individual’s death. 30 The bill provides that when a purchase agreement is acquired as 31 part of the sale of a business or the assets of a business, a 32 buyer would no longer be required to comply with the statute’s 33 audit requirements. A requirement for an audit performed by a 34 certified public accountant is replaced by a simpler process 35 -7- LSB 5277SV (2) 87 da/rn 7/ 8

S.F. 2275 of review referred to as an agreed-upon procedures engagement 1 and accompanying report. In addition, the division may waive 2 this requirement based on good cause (Code section 523A.207). 3 A purchase agreement refers to an agreement to furnish cemetery 4 merchandise, funeral merchandise, and funeral services which 5 may occur more than 120 days following an initial payment (Code 6 section 523A.102). 7 -8- LSB 5277SV (2) 87 da/rn 8/ 8