H.B. 2042 78(R) BILL ANALYSIS H.B. 2042 By: Marchant Pensions & Investments Committee Report (Unamended) BACKGROUND AND PURPOSE Investors witnessed several cases of alleged corporate malfeasance and securities violations during the last several years. To protect investors from future bad acts and allow for better enforcement of the Securities Act, the State Securities Board and the Office of the Attorney General believe certain sections of the Act need to be strengthened. The bill would expand the definition of a security, allow the State Securities Commissioner to provide reciprocal assistance to a securities regulator from another jurisdiction, subject unregistered investment advisers to penal provisions, and allow the Attorney General to seek equitable relief for a victim of fraud and the disgorgement of any economic benefit obtained through fraud. RULEMAKING AUTHORITY It is the opinion of the committee that this bill does not expressly grant any additional rulemaking authority to any state officer, department, agency, or institution. ANALYSIS SECTION 1. Amends Subsection A, Section 4, The Securities Act (Article 581-4, VTCS), by clarifying that the term security applies to an instrument whether it is a written document or not. SECTION 2. Amends Section 28, The Securities Act (Article 581-28, VTCS), by adding Subsection C which states that the State Securities Board is permitted to issue and apply to enforce a subpoena in this state at the request of a securities agency of another state or foreign jurisdiction regardless of whether the activities for which the information is sought would be a violation of the Securities Act had the violation occurred in this state. In determining whether to provide assistance, the State Securities Commissioner may consider if the request would violate or prejudice the public policy of this state. SECTION 3. Amends Section 29, The Securities Act (Article 581-29, VTCS), by requiring persons who render services as an investment adivser to register with the State Securities Board. Any person who provides such services and does not register is guilty of a felony and shall be sentenced to pay a fine of no more than $5,000 and/or be imprisoned in a state penitentiary for two to ten years. SECTION 4. Amends Section 32, The Securities Act (Article 581-32, VTCS), by broadening the scope of the Securities Act to permit the state to obtain and the court to grant appropriate equitable relief for victims of fraudulent practices. In an action for the fraudulent sale of a security, the Attorney General may seek the disgorgement of any economic benefit gained by the defendant through the violation. SECTION 5. Effective date. EFFECTIVE DATE This bill takes effect immediately if it receives a two-thirds vote of all the members of each house. Otherwise, the bill takes effect September 1, 2003.