BILL ANALYSIS
H.B. 1295
By: Clemons (Montford)
Economic Development
05-12-95
Senate Committee Report (Unamended)
BACKGROUND
Under the Texas Securities Act, the State Securities Board (board)
has the responsibility of protecting investors. Consistent with
that purpose, the board encourages capital formation, job
formation, and free and competitive securities markets and attempts
to minimize burdens on small businesses. Maximizing coordination
with federal and state laws is another responsibility.
Unfortunately, recent years have seen a significant increase in
improper and illegal conduct due to a marked increase in securities
activities.
PURPOSE
As proposed, H.B. 1295 clarifies methods of registration and
renewal procedures for investors; reduces certain fees; grants the
State Securities Board authority to exempt certain persons from
dealer and agent registration requirements; clarifies provisions
concerning the collection of commissions by securities dealers or
agents; streamlines the registration application process for
certain small business issuers; modernizes the Texas Securities Act
by accommodating participation in an electronic filing system; and
implements certain uniform renewal procedures.
RULEMAKING AUTHORITY
It is the committee's opinion that rulemaking authority is granted
to the State Securities Board (board) under SECTION 5 (Sec.
7(A)(f)(2), Article 581-7, V.T.C.S.), SECTION 6 (Sec. 8, Article
581-8, V.T.C.S.), SECTION 7 (Sec. 12(B), Article 581-12, V.T.C.S.)
and SECTION 18 (Sec. 42(A) and (B), Article 581-1 et seq.,
V.T.C.S.) of this bill.
SECTION BY SECTION ANALYSIS
SECTION 1. Amends Section 2N, Article 581-2, V.T.C.S. (The
Securities Act), to make nonsubstantive changes.
SECTION 2. Amends Article 581-1 et seq., V.T.C.S., by adding
Section 3-1, as follows:
Sec. 3-1. NONEXCLUSIVELY OF MEANS OF ENFORCEMENT. Authorizes
the Securities Commissioner (commissioner) to utilize any or
all penalties, sanctions, remedies, or relief as the
commissioner deems necessary.
SECTION 3. Amends Section 4A, Article 581-4, V.T.C.S., to prohibit
the definition of "security" or "securities" from applying to any
insurance policy, endowment policy, annuity contract, optional
annuity contract, or any contract or agreement in relation to and
in consequence of any such policy or contract, issued by an
insurance company subject to the supervision or control of the
Texas Department of Insurance, rather than the State Board of
Insurance. Makes a conforming change.
SECTION 4. Amends Section 5, Article 581-5, V.T.C.S., as follows:
Sec. 5. EXEMPT TRANSACTIONS. Prohibits the provisions of this
Act from applying to the sale of any security when made in any
of the following transactions and under any of the following
conditions:
(A)-(B) Make no changes.
(C) Makes a conforming change.
(D)-(H) Make no changes.
(I) Deletes the provision that the commissioner may, by
order, revoke or suspend the exemption under clause (c) of
this subsection with respect to any security if he has cause
to believe that the plan of business of the issuer of such
security, the security, or the sale thereof would tend to
work a fraud or deceit upon the purchaser thereof. Makes
nonsubstantive and conforming changes.
(J)-(M) Make no changes.
(N) the sale and issuance of any securities issued by any
farmers' cooperative marketing association, rather than a
farmers' cooperative association, or the predecessor of that
law. Makes nonsubstantive and conforming changes.
(O) Authorizes the State Securities Board (board) to revoke
or suspend the recognition hereunder of any manuals
previously approved under this subsection but no such action
may be taken unless upon notice and opportunity for hearing
before the board or a hearings officer as now or hereafter
required by law, rather than appointed by the board. Makes
nonsubstantive changes.
(P) Makes no change.
(Q)-(R) Make nonsubstantive changes.
(S)-(T) Make no changes.
SECTION 5. Amends Sections 7(A), 7(B), and 7(C), Article 581-7,
V.T.C.S., as follows:
(A) QUALIFICATION OF SECURITIES. (f)(1) Requires an
application to include a detailed income statement, rather
than profit and loss statement. Makes nonsubstantive and
conforming change.
(f)(2) Authorizes the financial statements required in
Subparagraph (1) of this paragraph for a small business
issuer, as defined by board rule, to be reviewed by an
independent certified public accountant in accordance with
the Statements on Standards for Accounting and Review
Services promulgated by the American Institute of Certified
Public Accountants in lieu of being audited and certified,
provided that the small business issuer otherwise meets all
of the requirements that the board by rule, regulation, or
order may prescribe.
(B) REGISTRATION BY NOTIFICATION. Makes nonsubstantive and
conforming changes. Requires securities entitled to
registration by notification to be registered by the filing
with the commissioner by the issuer or by a registered dealer
of a registration statement and completion of the procedures
outlined in Paragraph (b) of this subdivision:
(a) a registration statement in a form prescribed by the
commissioner signed by the applicant filing such statement
and containing the following information:
(1)-(4) Make no changes.
(5) Makes a nonsubstantive change.
(6) financial statements to include certified statement
of stockholders' equity, rather than a statements of
surplus.
(7)-(8) Make no changes.
(b)-(c) Make no changes.
(C) REGISTRATION BY COORDINATION.
(1)(a) Requires a registration statement under this section
to be filed with the commissioner by the issuer or any
registered dealer, to contain certain information, and to be
accompanied by one copy, rather than three copies, of the
prospectus filed under the Securities Act of 1933, rather
than the Federal Securities Act. Makes nonsubstantive
changes.
(b)-(h) Make no changes.
(2) Makes no change.
(3) Requires registration of securities under this
subsection to be effective for the following periods:
(a) Requires the initial registration of securities of an
open-end investment company, as defined in the Investment
Company Act of 1940, to be effective until two months
after the end of the issuer's fiscal year. Authorizes the
issuer or its agent, after the initial registration, to
renew the registration by submitting the appropriate
registration forms and renewal fees within two months
after the end of the issuer's fiscal year.
(b) Requires the registration of securities of a unit
investment trust to be effective until one year from the
date of effectiveness granted by the federal Securities
and Exchange Commission.
(c) Requires any other registration of securities to be
effective for a period of one year from the date the
registration is declared effective by the commissioner.
(4) Authorizes registrations of securities under Subdivision
(3) to be renewed for additional periods of one year if the
appropriate registration forms and renewal fees are received
prior to the expiration date. Provides that the same
standards of fairness, justice and equity as prescribed by
this subsection for original approval will apply to the
renewal of all registrations. Deletes the provision that the
fee of $10 is paid and if the securities are entitled to
registration at the time of renewal by the same standards of
fairness, justice, and equity as prescribed by this
subsection for original approval will apply to the renewal
of all registrations.
SECTION 6. Amends Section 8, Article 581-8, V.T.C.S., as follows:
Sec. 8. New heading: CONSENT TO SERVICE. Requires any
application filed by an issuer, or by a dealer who will offer
such securities for sale as the agent of the issuer, and the
issuer is organized under the laws of any other state,
territory, or government, or domiciled in any other state than
Texas, unless the board by rule otherwise specifies, to
contain a written instrument appointing the commissioner the
issuer's true and lawful attorney. Requires such instrument to
be duly executed by an authorized agent of the issuer under
proper resolution or authority. Requires it to be the duty of
the commissioner, whenever the commissioner shall have been
served with any process as is herein provided, it shall be the
duty of the commissioner to forward same by U.S. mail to the
last known address, rather than the home office, of such
issuer.
SECTION 7. Amends Section 12, Article 581-12, V.T.C.S., to
authorize the board to adopt rules and regulations exempting
certain classes of persons from the dealer and agent registration
requirements, or providing conditional exemptions from
registration, if the board determines that such rules and
regulations are consistent with the purposes of this Act.
SECTION 8. Amends Section 13K, Article 581-13, V.T.C.S., to
authorize the commissioner to accept some or all of the
examinations administered by the National Association of Securities
Dealers to fulfill the examination requirements of Subsection D.
Deletes the authorization of the board to waive any registration
requirement for an applicant with a valid registration from another
state having registration requirements substantially equivalent to
those of this state.
SECTION 9. Amends Sections 14A and 14D, Article 581-14, V.T.C.S.,
to authorize the commissioner to deny, revoke, or suspend a
registration, place on probation a dealer, agent, or salesman whose
registration had been suspended, or reprimand a person registered
under this Act if the person:
(1) has been convicted of any felony, rather than of a
misdemeanor of which fraud is an essential element;
(2) has been convicted of any misdemeanor which directly
relates to the person's securities-related duties and
responsibilities;
(3)-(7) Make nonsubstantive changes.
(8) became registered as a dealer or salesman after August
23, 1963;
(9) is the subject of certain orders that are currently
effective and were issued within the last five years;
(10) is subject to any order, judgment, or decree entered by
any court of competent jurisdiction which permanently
restrains or enjoins such person from engaging in or
continuing any conduct, action, or practice in connection
with any aspect of the purchase or sale of securities; or
(11) has violated any provision of any order issued by the
commissioner or has violated any provision of any
undertaking or agreement with the commissioner. Deletes the
provision that prohibits this subdivision from applying to
any person or company registered as a dealer or salesman on
August 23, 1963.
(D) Entitles a person, if the commissioner proposes to suspend
or revoke a person's registration, to hearing before the
commissioner or a hearings officer as now or hereafter
required by law. Makes a nonsubstantive change.
SECTION 10. Amends Section 16, Article 581-16, V.T.C.S., as
follows:
Sec. 16. New heading: CONSENT TO SUIT IN THIS STATE BY CERTAIN
DEALERS. Requires every company organized under the laws of
any other state or of any foreign country, or having its
principal office therein, to file with its application for
registration as a dealer an irrevocable written consent. Makes
nonsubstantive and conforming changes.
SECTION 11. Amends Section 19C, Article 581-19, V.T.C.S., as
follows:
(C) RENEWAL OF REGISTRATION. (1) Authorizes a person to renew
an unexpired registration by filing a renewal application in
the form prescribed by the commissioner and paying to the
board the required renewal fee.
(2)-(3) Make nonsubstantive and conforming changes.
(4) Requires a person to pay to the board a fee that is
equal to the original application fee.
(5) Requires the commissioner, at least 30 days before the
expiration of a person's registration, to send to the person
at the person's last known address according to the records
of the board a written notice of the impending expiration of
the registration.
(6) Subjects a person who sells securities or renders
investment advisory services after the person's registration
has expired and before it is renewed to the sanctions
provided by this Act for selling securities or rendering
investment advice without being registered.
SECTION 12. Amends Section 23, Article 581-23, V.T.C.S., as
follows:
Sec. 23. New heading: CEASE AND DESIST ORDERS; CEASE
PUBLICATION ORDERS; LIST OR SECURITIES OFFERED. Authorizes the
commissioner, if it appears to the commissioner at any time
that an offer contains any statement that is materially false
or misleading or is otherwise likely to deceive the public, to
issue a cease publication order. Provides that no person shall
make an offer prohibited by such cease publication order.
Deletes the provision that no person shall make an offer
within this state after a cease publication order has been
issued by the commissioner stating that in the commissioner's
opinion, the offer contains any statement that is materially
false or misleading or is otherwise likely to deceive a reader
thereof.
SECTION 13. Amends Article 581-1 et seq., V.T.C.S., by adding
Section 23-1, as follows:
Sec. 23-1. ASSESSMENT OF ADMINISTRATIVE FINES. (A) Authorizes
the commissioner, after giving notice and opportunity for a
hearing, to issue an order which assesses an administrative
fine against any person or company found to have violated any
provision of this Act, board rule, or board order.
(B) Requires any administrative fine assessed under this
section to be in an amount that does not exceed $10,000 for
a single violation or $100,000 for multiple violations in a
single proceeding or a series of related proceedings.
(C) Requires the commissioner, for purposes of determining
the amount of an administrative fine assessed under this
section, to consider factors set out in guidelines
established by the board.
(D) Prohibits the payment of a fine assessed in an agreed
order under this Act, for purposes of private civil
litigation, from constituting an admission of any misconduct
described in the agreed order.
(E) Requires any proceeding for the assessment of an
administrative fine to be commence within five years after
the violation occurs.
SECTION 14. Amends Section 24, Article 581-24, V.T.C.S., as
follows:
Sec. 24. HEARINGS UPON EXCEPTION TO ACTIONS OF COMMISSIONER. (A)
Authorizes a person who takes exception to the action of the
commissioner in failing or refusing to register and issue
certificate for a dealer or salesman, in issuing an order against
the sale of securities or the use of materials therein, or in any
other particular where this Act specifies no other procedure, to
request a hearing before a hearings officer as now or hereafter
required by law.
(B) Requires the board or a hearings officer as now or
hereafter required by law, rather than appointed by the board,
to conduct a hearing on complaint by a person aggrieved by a
denial of a permit for the sale of securities or a failure or
refusal to register securities.
(C) Subjects hearings under this section to the requirements
of Chapter 2001, Government Code.
SECTION 15. Amends Section 28, Article 581-28, V.T.C.S., as
follows:
Sec. 28. New heading: INVESTIGATIONS, INVESTIGATORY MATERIALS,
AND REGISTRATION RELATED MATERIALS. (A) New heading: SUBPOENAS
OR OTHER PROCESS IN INVESTIGATIONS BY COMMISSIONER. Requires
the commissioner or deputy commissioner, in the course of an
investigation looking to the enforcement of this Act, or in
connection with the application of a person or company for
registration or to qualify securities, to have free access to
all records and reports of any department or agency of the
state government; deletes specifications. Requires all
disbursements made in the payment of such fees to be made in
accordance with board rule. Authorizes the commissioner to
disclose any confidential information in the commissioner's
possession to any receiver appointed under Section 25-1 of
this Act. Provides that the disclosure does not violate any
other provision of this Act or Chapter 552, Government Code.
Makes nonsubstantive and conforming changes.
(B) CONFIDENTIALITY OF CERTAIN REGISTRATION-RELATED AND
OTHER MATERIALS. Provides that any intraagency or
interagency notes, memoranda, reports, or other
communications consisting of advice, analyses, opinions, or
recommendations shall be treated as confidential by the
commissioner and shall not be disclosed to the public,
except under order of court, for good cause shown. Makes a
conforming change.
SECTION 16. Amends Section 29, Article 581-29, V.T.C.S., to
require that any person who shall knowingly make an offer of any
security within this state prohibited by a cease publication order
issued by the commissioner under Section 23B of this Act to be
deemed guilty of a felony, and upon conviction thereof, to be
sentenced to pay a fine or no more than $5,000 or imprisonment in
the penitentiary for not more than two years, or by both such fine
and imprisonment.
SECTION 17. Amends Section 34, Article 581-34, V.T.C.S., as
follows:
Sec. 34. ACTIONS FOR COMMISSION; ALLEGATIONS AND PROOF OF
COMPLIANCE. Prohibits a person or company from bringing or
maintaining any action in the courts of this state for
collection of a commission or compensation for services
rendered in the sale or purchase of securities, without
alleging and proving that such person or company was duly
registered, rather than licensed, under the provisions of this
Act or duly exempt from such registration pursuant to rules
adopted under Section 12B of this Act. Prohibits this section
from applying to any company or person that rendered services
in connection with any transaction exempted by Section 5 of
this Act or by any rule promulgated by the board pursuant to
Section 5T of this Act if the company or person was not
required to be registered by the terms of the exemption.
Deletes existing Subdivision (2). Makes nonsubstantive
changes.
SECTION 18. Amends Article 581-1 et seq., V.T.C.S., by adding
Section 42, as follows:
Sec. 42. REDUCED FEES. (A) Authorizes the board, by rule, to
adopt reduced fees, under Sections 35 and 41 of this Act, for
original and renewal applications of dealers, agents,
officers, or salesmen who have assumed inactive status as
defined by the board.
(B) Authorizes the board, by rule, to adopt reduced fees,
under Sections 35 and 41 of this Act, for persons required
by this Act to register in two or more of the following:
dealer; agent or salesman; or officer.
SECTION 19. Makes application of this Act prospective.
SECTION 20. Effective date: September 1, 1995.
SECTION 21. Emergency clause.