SF 2275 (LSB 5277SV (2) 87)

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 by the insurance division of the department of commerce, by providing for regulated securities and exchanges, and financial records associated with the sale of cemetery and funeral merchandise and services.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

DIVISION I
IOWA UNIFORM SECURITIES ACT

    Section 1.  Section 502.202, subsection 2, paragraph e, subparagraph (1), Code 2018, is amended to read as follows:
   (1)  The issuer of the security has a class of equity securities listed on a national securities exchange registered under section 6 of the Securities Exchange Act of 1934 or designated for trading on the national association of securities dealers automated quotation system.
    Sec. 2.  Section 502.202, subsection 24, paragraph a, Code 2018, is amended to read as follows:
   a.  Definitions.  As used in this subsection, unless the context otherwise requires:
   (1)  “Intermediary” means a any of the following:
   (a)  A broker-dealer that is subject to the registration requirements of section 502.401 and that facilitates the offer and sale of securities by issuers to investors through an internet-based system that is open to and accessible by the general public.
   (b)  “Intermediary” also means an entity registered with the administrator as an Iowa crowdfunding portal.  A business entity that is all of the following:
   (i)  A funding portal that is registered with the securities and exchange commission pursuant to the Securities Act of 1933, including as provided in 15 U.S.C. §77d-1.
   (ii)  A member of the financial industry regulatory authority, inc. pursuant to the Securities Exchange Act of 1934, including as provided in 15 U.S.C. §§78c and 78o-3, and 17 C.F.R. §227.400.
   (c)  A business entity that qualifies as an Iowa crowdfunding portal by meeting all of the following requirements:
   (i)  Is registered with the administrator as required by the administrator.
   (ii)  Is engaged in intrastate crowdfunding offers and sales of exempt securities in this state through an internet site.
   (iii)  Does not operate or facilitate a secondary market in securities. 
   (2)  “Intrastate crowdfunding” means the offer or sale of a security by an issuer in a transaction that is available for purchase only by an Iowa residents and by resident or a business organizations located in, and organized and registered under the laws of, entity having its principal place of business in this state.
   (3)  “Iowa crowdfunding portal” means an entity incorporated or organized under the laws of this state, authorized to do business in this state, and engaged exclusively in intrastate crowdfunding offers and sales of exempt securities in this state through an internet site and which does not operate or facilitate a secondary market in securities.
    Sec. 3.  Section 502.202, subsection 24, paragraph c, Code 2018, is amended to read as follows:
   c.  Aggregate sales limit.  The aggregate amount of securities sold to all investors by the issuer during the twelve-month period preceding the date of the offer or sale, including any amount sold in reliance upon the exemption in this subsection, shall not exceed one five million dollars other than either of the following:
   (1)  Securities sold to Iowa resident institutional investors.
   (2)  Securities sold to the Iowa resident issuer’s management.
    Sec. 4.  Section 502.302, subsection 3, Code 2018, is amended to read as follows:
   3.  Notice filings for federal covered securities under section 18(b)(4)(D) 18(b)(4)(F).  With respect to a security that is a federal covered security under section 18(b)(4)(D) 18(b)(4)(F) of the Securities Act of 1933, 15 U.S.C. §77r(b)(4)(D) §77r(b)(4)(F), a rule under this chapter may require a notice filing by or on behalf of an issuer to include a copy of form D, including the appendix, as promulgated by the securities and exchange commission, and a consent to service of process complying with section 502.611 signed by the issuer not later than fifteen days after the first sale of the federal covered security in this state and the payment of a fee of one hundred dollars; and the payment of a fee of two hundred fifty dollars for any late filing.
    Sec. 5.  Section 502.406, subsection 5, Code 2018, is amended to read as follows:
   5.  Additional conditions or waivers.  A rule adopted or order issued under this chapter may impose such other conditions, not inconsistent with the National Securities Markets Improvement Act of 1996. An order or rule issued under this chapter may waive, in whole or in part, specific requirements in connection with registration as are in the public interest and for the protection of investors.
DIVISION II
VIATICAL SETTLEMENT ACT

    Sec. 6.  Section 508E.15, subsection 4, paragraph a, subparagraph (4), Code 2018, is amended to read as follows:
   (4)  The national association of insurance commissioners; the national association of securities dealers the financial industry regulatory authority, inc.; the North American securities administrators association; their employees, agents, or representatives; or other regulatory body overseeing life insurance, viatical settlements, securities, or investment fraud.
DIVISION III
IOWA CEMETERY AND FUNERAL MERCHANDISE AND FUNERAL SERVICES ACT

    Sec. 7.  Section 523A.207, Code 2018, is amended to read as follows:
   523A.207  Audits Report by certified public accountants —— penalty penalties —— waiver —— confidentiality.
   1.  A purchase agreement shall not be sold or transferred, as part of the sale of a business or the assets of a business, until an audit has been performed by a certified public accountant has completed an agreed-upon procedures engagement in accordance with the attestation standards established by the American institute of certified public accountants and a report is filed with the commissioner that expresses the auditor’s opinion of factual findings and results of applying the agreed-upon procedures that verifies the adequacy or inadequacy of funding related to the purchase agreements to be sold or transferred.
   2.  If the buyer of a purchase agreement sold or transferred as part of the sale of a business or the assets of a business, fails to file such an audit a report described in subsection 1, the commissioner shall may suspend the preneed seller’s license of the buyer and the preneed sales license of any sales agent in the employ of the buyer until the audit report is filed. In addition, the commissioner shall may assess a penalty against the buyer in an amount up to one hundred dollars for each day that the audit report remains unfiled. The commissioner shall allow a thirty-day grace period after the date that a purchase agreement is sold or transferred before suspension of a license or assessment of a penalty for failure to file an audit pursuant to this subsection the report.  Upon good cause, the commissioner may issue an order waiving the report requirements.
   2.  3.  All records maintained by the commissioner under this section shall be confidential pursuant to section 22.7, subsection 58, and shall not be made available for inspection or copying except upon approval of the commissioner or the attorney general, or except when sought by the preneed seller to whom the records relate. Such records shall be privileged and confidential in any judicial or administrative proceeding except any of the following:
   a.  An action commenced by the commissioner.
   b.  An administrative proceeding brought by the insurance division.
   c.  An action or proceeding which arises out of the criminal provisions of the laws of this state or of the United States.
   d.  An action brought by the insurance division or the attorney general to recover moneys for embezzlement, misappropriation, or misuse of trust funds.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   GENERAL. This bill provides for the regulation of a number of noninsurance business transactions and associated entities by the insurance division (division) of the department of commerce.
   BLUE SKY LAW —— GENERAL. The amended provisions include sections in the “Iowa Uniform Securities Act” which is sometimes referred to as the “Blue Sky Law (Code chapter 502). A person is prohibited from offering to sell or selling a security in this state unless it is registered with the division, exempt from registration, or a federal covered security regulated under federal law (Code section 502.301). The bill amends provisions that are closely connected to two federal statutes: the “Securities Act of 1933” and the “Securities Exchange Act of 1934” (for citations, see Code section 502.103) as administered by the federal securities and exchange commission (SEC). The SEC works in close cooperation with several private entities including the financial industry regulatory authority (FINRA).
   BLUE SKY LAW —— CHANGE IN ORGANIZATION. The bill strikes references to the national association of securities dealers (NASD) which was a self-regulatory organization of the securities industry responsible for the operation and regulation of the NASDAQ stock market and over-the-counter markets. It has been succeeded by FINRA, a not-for-profit organization recognized by federal statute to regulate broker-dealers engaged in transactions involving the purchase and sale of securities for their own account or for the account of others.
   BLUE SKY LAW —— INTRASTATE CROWDFUNDING —— BILL’S PROVISIONS. The bill amends provisions (Code section 502.202(24)) that currently exempt intrastate crowdfunding from certain Blue Sky Law requirements, including the registration of securities (Code sections 502.301 and 502.306) and the filing of sales and advertising literature (Code section 502.504).
   The bill revises the definition of “intermediary” to include a business entity that satisfies two requirements: (1) be registered with the SEC as a funding portal and (2) be a member of FINRA (17 C.F.R. §227.400). Under federal law, a funding portal cannot offer investment advice or recommendations or solicit purchases or sales of securities, or handle investor assets (17 U.S.C. §78c(a)(80)).
   Currently, in Iowa, an intermediary is limited to either a broker-dealer registered with the division (Code section 502.401) or a business entity, such as a corporation, qualifying as an “Iowa crowdfunding portal” which means it: (1) is registered with the division, (2) is organized under state law, (3) is engaged exclusively in intrastate crowdfunding offers and sales of exempt securities in this state through an internet site, and (4) does not operate or facilitate a secondary market in securities. The bill provides that an Iowa crowdfunding portal would no longer be required to be organized or authorized to do business in this state or be engaged in crowdfunding exclusively in this state. Finally, the bill increases the aggregate amount of securities that could be sold to investors by an issuer acting through an intermediary during the 12 months prior to the date of offer or sale from $1 million to $5 million.
   BLUE SKY LAW —— INTRASTATE CROWDFUNDING. “Crowdfunding” refers to the practice of raising capital to finance ventures (e.g., start-ups and early stage companies) by attracting investments generally from small contributors purchasing an equity position (e.g., the purchase of stock) via the internet. “Intrastate crowdfunding” refers to a securities transaction that is: (1) available for purchase only by an Iowa resident or business entity having its principal place of business in this state and (2) made via an intermediary’s internet site. The bill requires the business entity maintain its principal place of business in this state.
   BLUE SKY LAW —— REGULATION OF NOTICE FILINGS AND FEES. The bill updates a statutory citation that provides that the SEC form “D”, a notice of an exempt offering (17 C.F.R. §239.500), and an associated fee are required to be filed with the division. The federal “National Securities Markets Improvement Act of 1996” (Pub. L. No. 104-290) amended the Securities Act of 1933, by creating a class of securities referred to as “covered securities” which when sold by a licensed broker-dealer is no longer subject to state registration but may be subject to notice filings at the state level so long as the state’s requirements are substantially the same as those in effect on September 1, 1996 (15 U.S.C. §77r).
   VIATICAL SETTLEMENTS —— CHANGE IN ORGANIZATION. The bill amends a provision referring to circumstances in which a person may be immune from liability from an offense involving a fraudulent viatical settlement act, if the person acting in good faith sends or receives information from NASD. The bill changes that organization to FINRA.
   AUDIT REQUIREMENTS ASSOCIATED WITH THE SALE OF CEMETERY AND FUNERAL MERCHANDISE AND SERVICES. The bill amends the “Iowa Cemetery and Funeral Merchandise and Funeral Services Act” (Code chapter 523A) which regulates business entities and sales agents offering to provide cemetery merchandise, funeral merchandise, or funeral services upon an individual’s death. The bill provides that when a purchase agreement is acquired as part of the sale of a business or the assets of a business, a buyer would no longer be required to comply with the statute’s audit requirements. A requirement for an audit performed by a certified public accountant is replaced by a simpler process of review referred to as an agreed-upon procedures engagement and accompanying report. In addition, the division may waive this requirement based on good cause (Code section 523A.207). A purchase agreement refers to an agreement to furnish cemetery merchandise, funeral merchandise, and funeral services which may occur more than 120 days following an initial payment (Code section 523A.102).