By: Parker H.B. No. 3425
 
 
 
A BILL TO BE ENTITLED
 
AN ACT
  relating to the creation of a intrastate investment market for
  purposes of trading securities issued under the intrastate
  crowdfunding exemption from federal securities laws.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  SHORT TITLE. This Act may be cited as the "Texas
  Investment Market Exchange Act".
         SECTION 2.  Section 5, The Securities Act (Article 581-23-5,
  Vernon's Texas Civil Statutes), is amended by adding subsection (W)
  to read as follows:
         (W)  Creation of Stock Exchange for Securities financed
  using the intrastate crowdfunding exemption or other exemption from
  federal securities regulation.
               (1)  Definitions.
                     (a)  "Texas Investment Market" means a person that
  is a broker-dealer, is exempt from federal registration under
  Section 15(A)(1) of the Securities Exchange Act of 1934, 15 USC §
  780, and provides a market or exchange at which transactions in
  securities that are sold or offered for sale pursuant to the
  intrastate crowdfunding or other federal exemption from securities
  regulation take place. As used in this subsection, "market" or
  "exchange" includes an online market or exchange or any other
  market or exchange operated through an internet portal.
               (2)  Coordination with federal securities laws. A Texas
  investment market that trades securities that have been issued in
  reliance on the intrastate crowdfunding or other exemption from
  federal securities regulation must also meet all applicable
  requirements of the Securities and Exchange Commission relating to
  its establishment and operation.
               (3)  Texas Investment Market; Requirements
                     (a)  Prohibited Activities.
                           (1)  No person may transact business in this
  State as a Texas Investment Market unless that person has
  registered with the Securities Commission as a Texas Investment
  Market.
                           (2)  Disqualifications. A person is not
  eligible to own, operate or otherwise manage a Texas Investment
  Market if that person has been subject to one of the following
  disqualifying events:
                                 (A)  has been convicted, within the 5
  years preceding the offering, of any felony or misdemeanor (i) in
  connection with the purchase or sale of any security; (ii)
  involving the making of any false filing with the SEC or state
  securities agency; or (iii) arising out of the conduct of the
  business of an underwriter, broker, dealer, municipal securities
  dealer, investment advisor or paid solicitor of securities;
                                 (B)  is subject to any order, judgment
  or decree of any court of competent jurisdiction entered with the
  5-year period preceding the offering, that at the time of such
  filing, restrains or enjoins such person from engaging or
  continuing to engage in any conduct or practice (i) in connection
  with the purchase or sale of a security; (ii) involving the making
  of any false filing with the SEC or a state securities agency; or
  (iii) arising out of the conduct of the business of an underwriter,
  broker, dealer, municipal securities dealer, investment advisor or
  paid solicitor of purchasers of securities; and
                                 (C)  is subject to any agreed order,
  final order, settlement agreement or other enforceable directive by
  the SEC or a state securities agency entered with the 5-year period
  preceding the offering, that at the time of such filing, restrains
  or enjoins such person from engaging or continuing to engage in any
  conduct or practice (i) in connection with the purchase or sale of a
  security; (ii) involving the making of any false filing with the SEC
  or a state securities agency; and (iii) arising out of the conduct
  of the business of an underwriter, broker, dealer, municipal
  securities dealer, investment advisor or paid solicitor of
  purchasers of securities; and (iv) arising out of scienter-based
  anti-fraud provisions in federal and state anti-fraud laws.
                           (3)  A Texas Investment Market is prohibited
  from engaging in the following activities:
                                 (A)  selling or otherwise distributing
  to any third party personal identifying information of an
  individual without his or her written consent;
                                 (B)  charging a fee for a securities
  transaction conducted through the Texas Investment Market that
  exceeds 5% of the value of the transaction, as determined by the
  value passed from one user to another in exchange for that security;
                                 (C)  dealing in securities options, or
  in securities from more than one class in an offering, without
  obtaining written acknowledgement from each person involved in the
  transaction relating to the nature of the securities transaction.
                           (4)  It is unlawful for any person, in
  connection with the organization and operation of a Texas
  Investment Market, to directly or indirectly do any of the
  following:
                                 (A)  employ a device, scheme, or
  artifice to defraud;
                                 (B)  make an untrue statement of a
  material fact or omit to state a material fact; or
                                 (C)  engage in an act, practice, or
  course of business that operates or would operate as a fraud or
  deceit on another person.
                     (b)  Registration.
                           (1)  No less than sixty (60) days prior to
  the offering of any securities for trade or sale, the Texas
  Investment Market must pay an appropriate filing fee, file a
  consent to service of process and file an application on a form and
  in a manner approved by the Securities Commissioner. At a minimum,
  the written application must contain the following information:
                                 (A)  the names, mailing addresses, and
  telephone numbers of all individuals who serve as executive
  officers of the Texas Investment Market or who are direct or
  indirect owners of at least a 20% ownership interest in the Texas
  Investment Market;
                                 (B)  the uniform resource locator
  (URL), if applicable, used primarily by the Texas Investment Market
  to effect transactions online;
                                 (C)  the rules that have been
  established by the Texas Investment Market to provide for the
  equitable allocation of reasonable dues, fees, and other charges
  among its issuers, investors, and other persons using its
  facilities; and
                                 (D)  any other information requested
  by the Securities Commissioner to make a determination regarding
  the registration application.
                           (2)  In considering an application for
  registration, the Securities Commissioner shall consider all of the
  following factors:
                                 (A)  whether the Texas Investment
  Market has the capacity to facilitate the transactions contemplated
  in this subsection, the rules and orders of the Securities
  Commissioner and the rules established by the Texas Investment
  Market;
                                 (B)  whether any of the individuals
  listed in the application have been disqualified pursuant to
  subsection (b)(3)(a)(2) or for other good cause;
                                 (C)  whether the rules that have been
  established by the Texas Investment Market to provide for the
  equitable allocation of reasonable dues, fees, and other charges
  among its issuers, investors, and other persons using its
  facilities are in fact equitable;
                                 (D)  whether the rules established by
  the Texas Investment Market provide for appropriate discipline for
  users that violate its own rules, the rules and regulations of the
  Board or this Article;
                                 (E)  whether the rules established by
  the Texas Investment Market impose any burden of competition or
  obstruction to a liquid intrastate securities market that is not
  necessary or appropriate to further the purposes of this Article;
  and
                                 (F)  whether the structure established
  by the Texas Investment Market has been designed to (i) protect
  against fraud and manipulative behavior, and (ii) to ensure that
  its operations do not foster unfair discrimination among issuers,
  investors and other persons that interact with the market.
                           (3)  If the information contained in an
  application that is filed under subsection (b)(1) is or becomes
  inaccurate or incomplete in any material respect, the registrant
  shall promptly file a correcting amendment to the application.
                     (c)  Operation.
                           (1)  The Texas Investment Market shall
  establish and maintain commercially reasonable measures to limit
  access to information concerning any transaction involving the
  offer or sale of securities issued pursuant to the intrastate
  crowdfunding exemption from securities regulation to Texas
  residents;
                           (2)  The Texas Investment Market shall
  establish and maintain a secure method of communication through the
  internet website that will permit issuers and investors to
  communicate with one another;
                           (3)  The Texas Investment Market shall
  establish rules that provide for the equitable allocation of dues,
  fees, and other charges among its issuers, investors, and other
  persons using its facilities, that provide for appropriate
  discipline of any person who violates it rules or the rules and
  regulations of the Board, that protect against fraud and
  manipulative behavior, and that ensure that its operations do not
  unfairly discriminate among issuers, investors and other persons
  interacting on the market;
                           (4)  The Texas Investment Market shall
  establish rules, practices and procedures that address the measures
  that will be taken to verify Texas residency of the issuers and
  investors engaging in the offer, sale and purchase of securities in
  reliance on the intrastate crowdfunding exemption, to ensure that
  individuals are not disqualified from trading securities pursuant
  to federal and state securities laws or for other good cause, and
  that issuers and investors are not insolvent;
                           (5)  A written and electronic record of each
  transaction conducted among users must be provided to each
  purchaser and must be maintained by the Texas Investment Market for
  a period of no less than seven (7) years after the date of the
  transaction. In addition, the Texas Investment Market must make and
  maintain the accounts, correspondence, memoranda, papers, books,
  and other records required by rule or order of the Securities
  Commissioner. These additional records shall be maintained in a
  form of data storage established by the Securities Commissioner;
                           (6)  By no later than the end of January of
  each year, the Texas Investment Market must file a report with the
  Securities Commissioner and post the report at the same time on its
  internet site that includes a record of each transaction that was
  initiated and each transaction that was concluded during the
  previous calendar year; and
                           (7)  Bonding/Financial Assurance. The Texas
  Investment Market must obtain and maintain appropriate bonding
  and/or insurance to protect the issuers and investors trading
  securities on its market, as specified by the Securities
  Commissioner by rule.
               (4)  Right of Access to Records; Inspection. Any person
  operating a Texas Investment Market shall keep and maintain records
  relating to all sales and trades of securities made pursuant to and
  in reliance on the intrastate crowdfunding or other exemption from
  federal securities regulation and shall provide ready access to
  these records to the Securities Commissioner upon request. The
  Securities Commissioner has the authority to access, inspect, audit
  and review any Texas Investment Market registered under this
  subsection as well as all of its records during reasonable business
  hours.
               (5)  Nothing in this exemption shall be construed to
  alleviate any person from the anti-fraud provisions in the Act or
  Board rules; nor shall such exemption be construed to provide
  relief from any other provisions of this Article other than as
  specifically stated
         SECTION 4.  The Securities Act (Article 581-13-1, Vernon's
  Texas Civil Statutes) is amended to read as follows:
 
         (A)  The Commissioner, without notice, may inspect a
  registered dealer, or registered investment advisor, issuer,
  crowdfunding portal and Texas Investment Market subject to
  regulation pursuant to Article 581-23-5(V)and (W) of the Act, as
  necessary to ensure compliance with this Act and Board rules.
         (B)  The Commissioner, during regular business hours, may:
               (1)  enter the business premises of a registered
  dealer, or registered investment adviser, any issuer and
  crowdfunding portal subject to regulation pursuant to Article
  581-23-5(V) of this Act and any Texas Investment Market subject to
  regulation pursuant to Article 581-23-5(W) of this Act;
               (2)  examine and copy books and records pertinent to
  the inspection.
         (C)  During the inspection, the dealer, investment advisor,
  issuer, crowdfunding portal and Texas Investment Market shall:
               (1)  provide to the Commissioner or the Commissioner's
  authorized representative immediate and complete access to the
  person's office, place of business, files, safe, and any other
  location in which books and records pertinent to the inspection are
  located; and
               (2)  allow the Commissioner or the Commissioner's
  authorized representative to make photostatic or electronic copies
  of books or records subject to the inspection.
         (D)  A dealer, or investment advisor, issuer, crowdfunding
  portal and Texas Investment Market may not charge a fee for copying
  information under this section.
         (E)  Information obtained under this section and any
  intra-agency or interagency notes, memoranda, reports, or other
  communications consisting of advice, analyses, opinions, or
  recommendations that are made in connection with the inspection are
  confidential and may not be disclosed to the public or released by
  the Commissioner except to the same extent provided for the release
  or disclosure of confidential documents or other information made
  or obtained in connection with an investigation under Section 28 of
  this Act.
         SECTION 5.  The Securities Act (Article 581-33,Vernon's
  Texas Civil Statutes) is amended by adding a new Section 581-33-4 to
  read as follows:
         Sec. 33-4.  Civil Liability with respect to Sale of a
  Security issued under the Intrastate Crowdfunding Exemption by a
  Texas Investment Market.
         (A)  Liability of Issuers
               (1)  A person who offers or sells a security issued
  under the intrastate crowdfunding exemption through a registered
  Texas Investment Market in violation of the provisions set forth in
  Section 581-23-5(W) is liable to the person buying the security,
  who may sue either at law or in equity for rescission or for damages
  if the buyer no longer owns the security.
               (2)  A person who offers or sells a security issued
  under the intrastate crowdfunding exemption through a registered
  Texas Investment Market by means of an untrue statement of a
  material fact or an omission to state a material fact necessary in
  order to make the statements made, in light of the circumstances
  under which they are made, is liable to the person buying the
  security, who may sue either at law or in equity for rescission, or
  for damages if the buyer no longer owns the security.
         (B)  Survivability of Actions. Every cause of action under
  this Act survives the death of any person who might have been a
  plaintiff or defendant.
         (C)  Unenforceability of Illegal Contracts. No person who
  has made or engaged in the performance of any contract in violation
  of this Act or any rule, regulation or order adopted hereunder, or
  who has acquired any purported right under any such contract with
  knowledge of the facts by reason of which its making or performance
  was in violation, may base any suit on the contract.
         (D)  Saving of Existing Remedies. The rights and remedies
  provided by this Act are in addition to any other rights (including
  exemplary or punitive damages) or remedies that may exist at law or
  in equity.
         SECTION 6.  This Act takes effect immediately if it receives
  a vote of two-thirds of all the members elected to each house, as
  provided by Section 39, Article III, Texas Constitution. If this
  Act does not receive the votes necessary for immediate effect, this
  Act takes effect September 1, 2015.