Senate Study Bill 3129 - Introduced SENATE/HOUSE FILE _____ BY (PROPOSED DEPARTMENT OF COMMERCE/INSURANCE DIVISION BILL) 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, 3 financial records associated with the sale of cemetery and 4 funeral merchandise and services, and eliminating specified 5 penalties for violations of requirements relating to 6 retirement and senior adult congregate living facilities. 7 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 8 TLSB 5277XD (13) 87 da/rn

S.F. _____ H.F. _____ 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 5277XD (13) 87 da/rn 1/ 9

S.F. _____ H.F. _____ (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 5277XD (13) 87 da/rn 2/ 9

S.F. _____ H.F. _____ 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 DIVISION II 7 VIATICAL SETTLEMENT ACT 8 Sec. 5. Section 508E.15, subsection 4, paragraph a, 9 subparagraph (4), Code 2018, is amended to read as follows: 10 (4) The national association of insurance commissioners; 11 the national association of securities dealers the financial 12 industry regulatory authority, inc. ; the North American 13 securities administrators association; their employees, agents, 14 or representatives; or other regulatory body overseeing life 15 insurance, viatical settlements, securities, or investment 16 fraud. 17 DIVISION III 18 IOWA CEMETERY AND FUNERAL MERCHANDISE AND FUNERAL SERVICES ACT 19 Sec. 6. Section 523A.207, Code 2018, is amended to read as 20 follows: 21 523A.207 Audits Report by certified public accountants —— 22 penalty penalties —— waiver —— confidentiality . 23 1. A purchase agreement shall not be sold or transferred, 24 as part of the sale of a business or the assets of a business, 25 until an audit has been performed by a certified public 26 accountant has completed an agreed-upon procedures engagement 27 in accordance with the attestation standards established by the 28 American institute of certified public accountants and a report 29 is filed with the commissioner that expresses the auditor’s 30 opinion of factual findings and results of applying the 31 agreed-upon procedures that verifies the adequacy or inadequacy 32 of funding related to the purchase agreements to be sold or 33 transferred. 34 2. If the buyer of a purchase agreement sold or transferred 35 -3- LSB 5277XD (13) 87 da/rn 3/ 9

S.F. _____ H.F. _____ as part of the sale of a business or the assets of a business, 1 fails to file such an audit a report described in subsection 1 , 2 the commissioner shall may suspend the preneed seller’s license 3 of the buyer and the preneed sales license of any sales agent 4 in the employ of the buyer until the audit report is filed. In 5 addition, the commissioner shall may assess a penalty against 6 the buyer in an amount up to one hundred dollars for each 7 day that the audit report remains unfiled. The commissioner 8 shall allow a thirty-day grace period after the date that a 9 purchase agreement is sold or transferred before suspension 10 of a license or assessment of a penalty for failure to file 11 an audit pursuant to this subsection the report . Upon good 12 cause, the commissioner may issue an order waiving the report 13 requirements. 14 2. 3. All records maintained by the commissioner under 15 this section shall be confidential pursuant to section 22.7, 16 subsection 58 , and shall not be made available for inspection 17 or copying except upon approval of the commissioner or the 18 attorney general, or except when sought by the preneed seller 19 to whom the records relate. Such records shall be privileged 20 and confidential in any judicial or administrative proceeding 21 except any of the following: 22 a. An action commenced by the commissioner. 23 b. An administrative proceeding brought by the insurance 24 division. 25 c. An action or proceeding which arises out of the criminal 26 provisions of the laws of this state or of the United States. 27 d. An action brought by the insurance division or 28 the attorney general to recover moneys for embezzlement, 29 misappropriation, or misuse of trust funds. 30 DIVISION IV 31 RETIREMENT AND SENIOR ADULT CONGREGATE LIVING FACILITIES 32 Sec. 7. REPEAL. Section 523D.8, Code 2018, is repealed. 33 EXPLANATION 34 The inclusion of this explanation does not constitute agreement with 35 -4- LSB 5277XD (13) 87 da/rn 4/ 9

S.F. _____ H.F. _____ the explanation’s substance by the members of the general assembly. 1 GENERAL. This bill provides for the regulation of a number 2 of noninsurance business transactions and associated entities 3 by the insurance division (division) of the department of 4 commerce. 5 BLUE SKY LAW —— GENERAL. The amended provisions include 6 sections in the “Iowa Uniform Securities Act” which is 7 sometimes referred to as the “Blue Sky Law (Code chapter 8 502). A person is prohibited from offering to sell or selling 9 a security in this state unless it is registered with the 10 division, exempt from registration, or a federal covered 11 security regulated under federal law (Code section 502.301). 12 The bill amends provisions that are closely connected to 13 two federal statutes: the “Securities Act of 1933” and the 14 “Securities Exchange Act of 1934” (for citations, see Code 15 section 502.103) as administered by the federal securities and 16 exchange commission (SEC). The SEC works in close cooperation 17 with several private entities including the financial industry 18 regulatory authority (FINRA). 19 BLUE SKY LAW —— CHANGE IN ORGANIZATION. The bill strikes 20 references to the national association of securities 21 dealers (NASD) which was a self-regulatory organization of 22 the securities industry responsible for the operation and 23 regulation of the NASDAQ stock market and over-the-counter 24 markets. It has been succeeded by FINRA, a not-for-profit 25 organization recognized by federal statute to regulate 26 broker-dealers engaged in transactions involving the purchase 27 and sale of securities for their own account or for the account 28 of others. 29 BLUE SKY LAW —— INTRASTATE CROWDFUNDING —— BILL’S 30 PROVISIONS. The bill amends provisions (Code section 31 502.202(24)) that currently exempt intrastate crowdfunding from 32 certain Blue Sky Law requirements, including the registration 33 of securities (Code sections 502.301 and 502.306) and the 34 filing of sales and advertising literature (Code section 35 -5- LSB 5277XD (13) 87 da/rn 5/ 9

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

S.F. _____ H.F. _____ BLUE SKY LAW —— REGULATION OF NOTICE FILINGS AND FEES. The 1 bill updates a statutory citation that provides that the SEC 2 form “D”, a notice of an exempt offering (17 C.F.R. §239.500), 3 and an associated fee are required to be filed with the 4 division. The federal “National Securities Markets Improvement 5 Act of 1996” (Pub. L. No. 104-290) amended the Securities 6 Act of 1933, by creating a class of securities referred 7 to as “covered securities” which when sold by a licensed 8 broker-dealer is no longer subject to state registration but 9 may be subject to notice filings at the state level so long as 10 the state’s requirements are substantially the same as those in 11 effect on September 1, 1996 (15 U.S.C. §77r). 12 VIATICAL SETTLEMENTS —— CHANGE IN ORGANIZATION. The bill 13 amends a provision referring to circumstances in which a 14 person may be immune from liability from an offense involving 15 a fraudulent viatical settlement act, if the person acting in 16 good faith sends or receives information from NASD. The bill 17 changes that organization to FINRA. 18 AUDIT REQUIREMENTS ASSOCIATED WITH THE SALE OF CEMETERY 19 AND FUNERAL MERCHANDISE AND SERVICES. The bill amends the 20 “Iowa Cemetery and Funeral Merchandise and Funeral Services 21 Act” (Code chapter 523A) which regulates business entities and 22 sales agents offering to provide cemetery merchandise, funeral 23 merchandise, or funeral services upon an individual’s death. 24 The bill provides that when a purchase agreement is acquired as 25 part of the sale of a business or the assets of a business, a 26 buyer would no longer be required to comply with the statute’s 27 audit requirements. A requirement for an audit performed by a 28 certified public accountant is replaced by a simpler process 29 of review referred to as an agreed-upon procedures engagement 30 and accompanying report. In addition, the division may waive 31 this requirement based on good cause (Code section 523A.207). 32 A purchase agreement refers to an agreement to furnish cemetery 33 merchandise, funeral merchandise, and funeral services which 34 may occur more than 120 days following an initial payment (Code 35 -7- LSB 5277XD (13) 87 da/rn 7/ 9

S.F. _____ H.F. _____ section 523A.102). 1 RETIREMENT AND SENIOR ADULT CONGREGATE LIVING FACILITIES —— 2 GENERAL. The bill amends Code chapter 523D which provides for 3 the regulation of continuing care retirement communities and 4 senior adult congregate living facilities, in part by requiring 5 the provider of care to deliver a disclosure statement to 6 a prospective resident or representative, and an annual 7 disclosure statement to an actual resident or representative 8 (Code section 523D.3). In addition, certain terms and 9 conditions included in a contract for care are required to 10 be specified including procedures for the cancellation of a 11 contract (Code section 523D.6). 12 RETIREMENT AND SENIOR ADULT CONGREGATE LIVING FACILITIES 13 —— ELIMINATION OF CRIMINAL PENALTY. The bill eliminates a 14 provision that makes a violation of the Code chapter or rule 15 adopted under the Code chapter a fraudulent practice (Code 16 section 523D.8). A provider in violation of the Code chapter 17 or associated rule would still be liable for damages in a 18 civil trial (Code section 523D.7). The division would also 19 retain authority to petition the district court to obtain an 20 injunction in order to restrain a person in violation of the 21 Code chapter or associated rule (Code section 523D.14). 22 RETIREMENT AND SENIOR ADULT CONGREGATE LIVING FACILITIES —— 23 FRAUDULENT PRACTICE DESCRIBED. A fraudulent practice involves 24 a number of acts which is a type of theft committed through 25 deceit or other fraud against a consumer with the offender’s 26 penalty based on the value of the affected consumer’s goods or 27 services (either the market value, replacement value, or actual 28 value) (Code sections 714.1 and 714.3). There are five degrees 29 of fraudulent practice, ranging from fraudulent practice in 30 the first degree when the amount of money or value of property 31 exceeds $10,000 and is punishable as a class “C” felony 32 (confinement for no more than 10 years and a fine of at least 33 $1,000 but not to exceed $10,000) to fraudulent practice in 34 the fifth degree when the amount of money or value of property 35 -8- LSB 5277XD (13) 87 da/rn 8/ 9