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PAG LIN 1 1 Section 1. Section 502.102, subsection 14, Code 1995, is 1 2 amended to read as follows: 1 3 14. "Security" means any note; stock; treasury stock; 1 4 bond; debenture; evidence of indebtedness; certificate of 1 5 interest or participation in a profit sharing agreement; 1 6 collateral trust certificate; preorganization certificate or 1 7 subscription; transferable share; investment contract; voting 1 8 trust certificate; certificate of deposit for a security; 1 9 fractional undivided interest in an oil, gas, or other mineral 1 10 lease or in payments out of production under such a lease, 1 11 right, or royalty; interest in a limited liability company; 1 12 or, in general, any interest or instrument commonly known as a 1 13 "security", or any certificate of interest or participation 1 14 in, temporary or interim certificate for, receipt for, 1 15 guarantee of, or warrant or right to subscribe to or purchase, 1 16 any of the foregoing. "Security" does not include an 1 17 insurance or endowment policy or annuity contract under which 1 18 an insurance company promises to pay money either in a lump 1 19 sum or periodically for life or for some other specified 1 20 period. 1 21 Sec. 2. Section 502.202, subsection 1, Code 1995, is 1 22 amended to read as follows: 1 23 1. Any security, including a revenue obligation, issued or 1 24 guaranteed by the United States, any state, any political 1 25 subdivision of a state, or any agency or corporate or other 1 26 instrumentality of one or more of the foregoing; or any 1 27 certificate of deposit for any of the foregoing; but this 1 28 exemption shall not include any revenue obligation payable 1 29 from payments to be made in respect of property or money used 1 30 under a lease, sale or loan arrangement by or for a 1 31 nongovernmental industrial or commercial enterprise, unless 1 32 such payments are or will be made or unconditionally 1 33 guaranteed by a person whose securities are exempt from 1 34 registration under this chapter by (a) this section, 1 35 subsection 7,or8, or 18, (b) subsection 9 of this section, 2 1 provided the issuer first files with the administrator a 2 2 written notice specifying the terms of the offer and the 2 3 administrator does not by order disallow the exemption within 2 4 fifteen days thereafter. 2 5 Sec. 3. Section 502.202, subsection 8, Code 1995, is 2 6 amended to read as follows: 2 7 8. Any security listed or approved for listing upon notice 2 8 of issuance on the New York Stock Exchange, the American Stock 2 9 Exchange,the Midwest Stock Exchange, the Pacific Coast Stock2 10Exchange,or any other national securities exchange registered 2 11 under the Securities Exchange Act of 1934 and designated by 2 12 rule of the administrator; any other security of the same 2 13 issuer which is of senior or substantially equal rank; any 2 14 security called for by subscription rights or warrants so 2 15 listed or approved; or any warrant or right to purchase or 2 16 subscribe to any of the foregoing. 2 17 Sec. 4. Section 502.203, subsection 2, paragraph b, Code 2 18 1995, is amended by striking the paragraph and inserting in 2 19 lieu thereof the following: 2 20 b. The security was issued by an issuer which has a class 2 21 of securities subject to registration under section 12 of the 2 22 Securities Exchange Act of 1934 and has been subject to the 2 23 reporting requirements of section 13 or 15(d) of the 2 24 Securities Exchange Act of 1934 for not less than one hundred 2 25 eighty days before the transaction. 2 26 Sec. 5. Section 502.206, subsection 4, Code 1995, is 2 27 amended to read as follows: 2 28 4. The registrant shall notify the administrator promptly 2 29by telephone or telegramin writing, which may be by 2 30 electronic, telegraphic, or facsimile transmission, of the 2 31 date and time when the federal registration statement became 2 32 effective and the content of the price amendment, if any, and 2 33 shall file a post-effective amendment promptly containing the 2 34 information and documents in the price amendment. "Price 2 35 amendment" means the final federal amendment which includes a 3 1 statement of the offering price, underwriting and selling 3 2 discounts or commissions, amount of proceeds, conversion 3 3 rates, call prices and other matters dependent upon the 3 4 offering price. Upon failure to receive the required 3 5 notification and post-effective amendment with respect to the 3 6 price amendment, the administrator may enter a stop order, 3 7 without notice or hearing, retroactively denying the 3 8 effectiveness to the registration statement or suspending its 3 9 effectiveness until compliance with this subsection is 3 10 effected, if the administrator promptly notifies the 3 11 registrantby telephone or telegramof the issuance of such 3 12 order. If the registrant proves compliance with the 3 13 requirements of this subsection as to notice and post- 3 14 effective amendment the stop order shall be vacated as of the 3 15 time of its entry. The administrator may by rule or order 3 16 waive any of the conditions specified in subsection 2 or 3. 3 17 Sec. 6. Section 502.301, subsection 1, paragraph b, 3 18 subparagraph (1), Code 1995, is amended to read as follows: 3 19 (1) The broker-dealer effects transactions in this state 3 20 exclusively with or through the issuers of the securities 3 21 involved in the transaction, other broker-dealers, banks, 3 22 trust companies, insurance companies, or investment companies 3 23 as defined in the Investment Company Act of 1940, pension or 3 24 profit sharing trusts, or other financial institutionsor3 25institutional buyers, whether acting for themselves or as 3 26 trustees; 3 27 Sec. 7. Section 502.302, subsection 1, Code 1995, is 3 28 amended to read as follows: 3 29 1. A broker-dealer or agent may obtain an initial or 3 30 renewal license by filing with the administrator, or an 3 31 organization which the administrator by rule designates, an 3 32 application together with a consent to service of process 3 33 pursuant to section 502.609 and the appropriate filing fee. 3 34 The application shall contain the information the 3 35 administrator requires by rule concerning the applicant's form 4 1 and place of organization, proposed method of doing business 4 2 and financial condition, the qualifications and experience of 4 3 the applicant, including, in the case of a broker-dealer, the 4 4 qualifications and experience of any partner, officer, 4 5 director or controlling person, any injunction or 4 6 administrative order or conviction of a misdemeanor involving 4 7 securities and any conviction of a felony, and any other 4 8 matters which the administrator determines are relevant to the 4 9 application. If no denial order is in effect and no 4 10 proceeding is pending under section 502.304, registration 4 11 becomes effective at noon of thethirtiethsixtieth day after 4 12 a completed application or an amendment completing the 4 13 application is filed, unless waived by the applicant. The 4 14 administrator may by rule or order specify an earlier 4 15 effective date. 4 16 Sec. 8. Section 502.304, subsection 1, Code 1995, is 4 17 amended by adding the following new paragraph: 4 18 NEW PARAGRAPH. n. Has done either of the following: 4 19 (1) Refused to allow or otherwise impeded the adminis- 4 20 trator or an employee of the securities bureau from conducting 4 21 an audit, examination, inspection, or investigation provided 4 22 for under section 502.303 or 502.603, including by withholding 4 23 or concealing material information from, or refusing to 4 24 furnish material information to, the administrator or an 4 25 employee of the bureau. 4 26 (2) Refused the administrator, or an employee of the 4 27 securities bureau, access to any office or location within an 4 28 office to conduct an audit, examination, inspection, or 4 29 investigation. 4 30 Sec. 9. Section 502.304, subsection 2, Code 1995, is 4 31 amended to read as follows: 4 32 2. The administratormayshall not institute a suspension 4 33 or revocation proceeding under subsection 1, paragraphs "c" 4 34 through "f", on the basis of a fact known to the administrator 4 35 when registration became effective, unless the proceeding is 5 1 instituted withinsixtyninety days after the effective date. 5 2 Sec. 10. Section 502.304, subsection 4, is amended to read 5 3 as follows: 5 4 4. a. If the administrator finds that any registrant or 5 5 applicant for registration is no longer in existence or has 5 6 ceased to do business as a broker-dealer, or agent, or is 5 7 subject to an adjudication of mental incompetence or to the 5 8 control of a committee, conservator, or guardian, or cannot be 5 9 located after search, the administrator may by order revoke 5 10 the registration or application. 5 11 b. If the administrator finds that the applicant or 5 12 registrant has abandoned the application or registration, the 5 13 administrator may enter an order of abandonment, and take the 5 14 appropriate action to reflect that within the licensing 5 15 system. The administrator may enter an order under this 5 16 paragraph, if the notice is sent to the applicant or 5 17 registrant, and either the administrator does not receive a 5 18 response from the applicant or registrant, or action is not 5 19 taken by the applicant or registrant within the time specified 5 20 by the administrator. 5 21 Sec. 11. Section 502.304, subsection 5, Code 1995, is 5 22 amended to read as follows: 5 23 5. Withdrawal from registration as a broker-dealer or 5 24 agent becomes effective thirty days after receipt of an 5 25 application to withdraw or within such shorter period of time 5 26 as the administrator may by order determine, unless a 5 27 revocation or suspension proceeding is pending when the 5 28 application is filed or a proceeding to revoke or suspend or 5 29 deny or to impose conditions upon the withdrawal is instituted 5 30 within thirty days after the application is filed. If a 5 31 proceeding is pending or instituted, withdrawal becomes 5 32 effective at such time and upon such conditions as the 5 33 administrator by order determines. If no proceeding is 5 34 pending or instituted and withdrawal automatically becomes 5 35 effective, the administrator may nevertheless institute a 6 1 revocation or suspension proceeding under subsection 1, 6 2 paragraph "b", within one year after withdrawal became 6 3 effective and enter a revocation or suspension order as of the 6 4 last date on which registration was effective. 6 5 Sec. 12. Section 502.502, Code 1995, is amended by adding 6 6 the following new subsection: 6 7 NEW SUBSECTION. 7. A copy of any suit filed under this 6 8 section shall be served upon the administrator within five 6 9 business days of the filing in the form and manner prescribed 6 10 by the administrator by rule or order, provided that the 6 11 failure to comply with this provision shall not invalidate the 6 12 action which is the subject of the suit. 6 13 Sec. 13. Section 502.604, subsection 2, Code 1995, is 6 14 amended to read as follows: 6 15 2. Bring an action in the district court to enjoin the act 6 16 or practice and to enforce compliance with this chapter or a 6 17 rule or order adopted or issued pursuant to this chapter. 6 18 Upon a proper showing a permanent or temporary injunction, 6 19 restraining order, or writ of mandamus shall be granted and a 6 20 receiver or conservator may be appointed for the defendant or 6 21 the defendant's assets. In addition, upon a proper showing by 6 22 the administrator, the court may enter an order of rescission, 6 23 restitution, or disgorgement directed at any person who has 6 24 engaged in an act constituting a violation of this chapter, or 6 25 a rule or order adopted or issued pursuant to this chapter, 6 26 and may order the payment of prejudgment and post-judgment 6 27 interest. The administrator shall not be required to post a 6 28 bond. 6 29 Sec. 14. Section 523A.11, Code 1995, is amended to read as 6 30 follows: 6 31 523A.11 INVESTIGATIONS. 6 32 The attorney general or the commissioner may, for the 6 33 purpose of discovering violations of this chapter or any rules 6 34 adopted under this chapter: 6 35 1. Investigate the business and examine the books, ac- 7 1 counts, records, and files used by every permit holder under 7 2 this chapter. 7 3 2. Notwithstanding chapter 22, keep confidential the 7 4 information obtained in the course of an investigation. 7 5 However, if the attorney general or the commissioner 7 6 determines that it is necessary or appropriate in the public 7 7 interest or for the protection of consumers, the attorney 7 8 general or commissioner may share information with other 7 9 attorneys general, commissioners, regulatory authorities, or 7 10 governmental agencies, or may publish information concerning a 7 11 violation of this chapter or a rule or order under this 7 12 chapter. 7 132.3. Administer oaths and affirmations, subpoena 7 14 witnesses, receive evidence, and require the production of 7 15 documents and records in connection with an investigation or 7 16 proceeding being conducted pursuant to this chapter. 7 173.4. Apply to the district court for issuance of an order 7 18 requiring a person's appearance before the commissioner or 7 19 attorney general, or a designee of either or both, in cases 7 20 where the person has refused to obey a subpoena issued by the 7 21 commissioner or attorney general. The person may also be 7 22 required to produce documentary evidence germane to the 7 23 subject of the investigation. Failure to obey a court order 7 24 under this subsection constitutes contempt of court. 7 25 Sec. 15. Section 523B.8, subsection 1, unnumbered para- 7 26 graph 1, Code 1995, is amended to read as follows: 7 27 If it appears to the administrator that a person has 7 28 engaged, is engaging, or is about to engage in any act or 7 29 practice constituting a violation of this chapter or a rule or 7 30 order adopted or issued under this chapter, the administrator 7 31 may issue an order directed at the person requiring the person 7 32 to cease and desist from engaging in the act or practice. The 7 33 person named in the order may, within fourteen daysafter7 34receiptof the date of the issuance of the order, file a 7 35 written request for a hearing. The hearing shall be held in 8 1 accordance with chapter 17A. 8 2 Sec. 16. Section 523B.8, subsection 4, Code 1995, is 8 3 amended to read as follows: 8 4 4. If it appears to the administrator that a person has 8 5 engaged, is engaged, or is about to engage in any act or 8 6 practice constituting a violation of this chapter, or of a 8 7 rule or order adopted or issued under this chapter, the 8 8 administrator may take either or both of the following 8 9 actions: 8 10 a.Notify the attorney general who shall bringBring an 8 11 action in the district court to enjoin the acts or practices 8 12 constituting the violation and to enforce compliance with this 8 13 chapter or any rule or order adopted or issued pursuant to 8 14 this chapter. Upon a proper showing a permanent or temporary 8 15 injunction shall be granted and a receiver or conservator may 8 16 be appointed for the defendant or the defendant's assets. 8 17 b.Sue on behalf of a purchaser to enforce the purchaser's8 18rights.Bring an action in district court and upon proper 8 19 showing by the administrator, the court may enter an order of 8 20 rescission, restitution, or disgorgement, directed at any 8 21 person who has engaged in an act constituting a violation of 8 22 this chapter, or a rule or order adopted or issued pursuant to 8 23 this chapter, and may order the payment of prejudgment and 8 24 post-judgment interest. The administrator shall not be 8 25 required to post bond. 8 26 Sec. 17. Section 523E.11, Code 1995, is amended to read as 8 27 follows: 8 28 523E.11 INVESTIGATIONS. 8 29 The attorney general or the commissioner may, for the 8 30 purpose of discovering violations of this chapter or any rules 8 31 adopted under this chapter: 8 32 1. Investigate the business and examine the books, 8 33 accounts, records, and files used by every permit holder under 8 34 this chapter. 8 35 2. Notwithstanding chapter 22, keep confidential the 9 1 information obtained in the course of an investigation. 9 2 However, if the attorney general or the commissioner 9 3 determines that it is necessary or appropriate in the public 9 4 interest or for the protection of consumers, the attorney 9 5 general or the commissioner may share information with other 9 6 attorneys general, commissioners, regulatory authorities, or 9 7 governmental agencies or may publish information concerning a 9 8 violation of this chapter or a rule or order under this 9 9 chapter. 9 102.3. Administer oaths and affirmations, subpoena 9 11 witnesses, receive evidence, and require the production of 9 12 documents and records in connection with an investigation or 9 13 proceeding being conducted pursuant to this chapter. 9 143.4. Apply to the district court for issuance of an order 9 15 requiring a person's appearance before the commissioner or 9 16 attorney general, or a designee of either or both, in cases 9 17 where the person has refused to obey a subpoena issued by the 9 18 commissioner or attorney general. The person may also be 9 19 required to produce documentary evidence germane to the 9 20 subject of the investigation. Failure to obey a court order 9 21 under this subsection constitutes contempt of court. 9 22 EXPLANATION 9 23 This bill amends a number of provisions in chapters 502, 9 24 523A, 523B, and 523E under the regulatory authority of the 9 25 securities bureau of the division of insurance. The bill 9 26 makes the following amendments: 9 27 Section 502.102 is amended to include an interest in a 9 28 limited liability company within the definition of "security" 9 29 under chapter 502. 9 30 Section 502.202 exempts securities issued or guaranteed by 9 31 a governmental organization from requirements related to 9 32 registration and filing sales and advertising literature. 9 33 This bill provides that the exemption applies to any revenue 9 34 obligation payable from payments relating to property or money 9 35 used under a lease, sale, or loan arrangement by or for a 10 1 nongovernmental industrial or commercial enterprise which are 10 2 made or unconditionally guaranteed by a person whose 10 3 securities are exempt from registration under subsection 18 10 4 which refers to a security designated or approved for 10 5 designation upon notice of issuance on the national 10 6 association of securities dealers automated 10 7 quotations&endash;national market system (NASDAQ/NMS). 10 8 Section 502.202 provides that securities listed upon notice 10 9 of issuance on the Midwest Stock Exchange and the Pacific 10 10 Coast Stock Exchange are exempt from requirements relating to 10 11 registration and filing sales and advertising literature. 10 12 This bill eliminates the reference to the Midwest Stock 10 13 Exchange and the Pacific Stock Exchange. 10 14 Section 502.203 provides that certain transactions are 10 15 exempt from requirements relating to registration and the 10 16 filing of promotional and sales literature. The bill 10 17 eliminates a provision exempting securities issued by an 10 18 issuer which has a class of securities currently registered 10 19 under the Securities Exchange Act of 1934, and adds an 10 20 exemption for a security issued by an issuer which has a class 10 21 of securities subject to registration under section 12 of the 10 22 Securities Exchange Act of 1934 and has been subject to the 10 23 reporting requirements of section 13 or 15(d) of the 10 24 Securities Exchange Act of 1934 for not less than 180 days 10 25 before the transaction. 10 26 Section 502.206 provides for registration by coordination. 10 27 The bill eliminates a provision requiring a registrant to 10 28 notify the administrator of the securities bureau by telephone 10 29 or telegram, and adds that the notification must be in 10 30 writing, which may be by electronic, telegraphic, or facsimile 10 31 transmission. 10 32 Section 502.301 provides that an out-of-state broker-dealer 10 33 may effect transactions in this state with certain persons in 10 34 Iowa without being licensed. This bill eliminates 10 35 institutional buyers as persons with whom the out-of-state 11 1 broker may act. 11 2 Section 502.302 provides for registration procedures. The 11 3 section provides that registration becomes effective at noon 11 4 of the thirtieth day after a completed application is filed, 11 5 unless the bureau takes other action. This bill changes the 11 6 thirtieth-day requirement to a sixtieth-day requirement. 11 7 Section 502.304 provides for the denial, revocation, 11 8 suspension, or withdrawal of a registration. The bill adds a 11 9 new ground for disciplinary action, including a refusal to 11 10 allow the bureau to conduct an audit, examination, inspection, 11 11 or investigation as provided in the chapter, or a refusal to 11 12 allow access to an office or location in order to conduct an 11 13 audit, examination, inspection, or investigation. 11 14 Section 502.304 currently provides that the bureau cannot 11 15 institute a disciplinary action against a person involving a 11 16 revocation or suspension of a registration for certain 11 17 purposes on the basis of a fact known to the bureau when the 11 18 registration became effective unless the proceeding is 11 19 instituted within 60 days after the effective date of the 11 20 registration. The bill increases this time to 90 days. 11 21 Section 502.304 is amended to provide that if the 11 22 administrator finds that the applicant or registrant has 11 23 abandoned the application or registration, the administrator 11 24 may enter an order of abandonment and take the appropriate 11 25 action to reflect that within the licensing system. 11 26 Section 502.304 provides for a person's withdrawal from 11 27 registration as a broker-dealer to become effective on a date 11 28 determined by the bureau if there is no proceeding to revoke 11 29 or suspend the registration. This bill provides that a 11 30 proceeding may include denial of a registration and the date 11 31 of denial may be determined by the bureau. 11 32 Section 502.502 provides for fraudulent practices. The 11 33 bill provides that a copy of any suit filed under the section 11 34 must be served upon the bureau within five business days of 11 35 the filing in a form and manner prescribed by the bureau. 12 1 Section 502.604 provides for cease and desist orders and 12 2 injunctions. The bill provides that a court may enter 12 3 prejudgment and post-judgment interest against a defendant. 12 4 Chapter 523A regulates funeral services and merchandise. 12 5 Section 523A.11 provides for investigations by the attorney 12 6 general or the commissioner of insurance. The bill provides 12 7 that information obtained in the course of an investigation is 12 8 not subject to the public records law. 12 9 The bill amends chapter 523B which regulates business 12 10 opportunity promotions. Section 523B.8 provides that the 12 11 bureau may issue an order directing a person to cease and 12 12 desist from engaging in an act or practice which is a 12 13 violation of the chapter. The bill provides that the person 12 14 named in the order has 14 days from the date of issuance 12 15 rather than the date of receipt to file a request for a 12 16 hearing. Section 523B.8 provides that if it appears to the 12 17 bureau that a person is violating the chapter or a rule or 12 18 order adopted or issued under the chapter the administrator 12 19 may notify the attorney general who is required to bring an 12 20 action in district court. The bill provides that the bureau 12 21 may bring the action directly. The bill also provides that 12 22 the court may enter an order of rescission, restitution, or 12 23 disgorgement, as well as prejudgment and post-judgment 12 24 interest against a defendant. 12 25 Finally, the bill amends chapter 523E which regulates 12 26 cemetery merchandising. Section 523E.11 provides that the 12 27 attorney general or the commissioner of insurance may conduct 12 28 investigations of businesses regulated under the chapter. 12 29 This bill provides that information obtained in the course of 12 30 an investigation is not subject to the public records law. 12 31 LSB 1713SV 76 12 32 da/jw/5
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