This bill adopts the Uniform Securities Act (2002) (USA 2002), with certain
modifications recommended by the Wisconsin Uniform Securities Act Study Group
(WUSA Study Group). The USA 2002 primarily revises and updates the Uniform
Securities Act of 1956, taking into consideration the little-adopted Revised Uniform
Securities Act of 1985 and the fact that parts of the Uniform Securities Act of 1956
have been preempted by the NSMIA. The stated purpose of the USA 2002 is to
modernize the 1956 Uniform Securities Act as a consequence of a combination of new
federal preemptive legislation, significant recent changes in the technology of
securities trading and regulation, and the increasingly interstate and international
aspects of securities transactions. The USA 2002 identifies, in its preface, three
overarching themes: 1) the objectives of uniformity and coordination of federal and
state securities law, cooperation among relevant state and federal governments and
other regulatory organizations, and investor protection; 2) achieving consistency
with the NSMIA, particularly with respect to federal covered securities and federal
covered investment advisers; and 3) facilitating electronic records, signatures, and
filings, including filings through third-party central information depositories, such
as the Central Registration Depository (Web-CRD) and the Investment Adviser
Registration Depository (IARD). Thirteen states have adopted the USA 2002.
In general, the form, structure, and mechanics of the USA 2002 are similar to
current Wisconsin law and the changes the USA 2002 makes to current law are not
dramatic. Also, this bill deviates in a number of ways from the USA 2002 to retain
provisions of current law in Wisconsin.
Securities registration
Under current law, a person may not offer or sell any security in this state
unless the security is registered with the Division of Securities in the Department
of Financial Institutions (division), the security or transaction is exempt from
registration, or the security is a federal covered security. In addition, a securities
issuer or registrant, and certain control persons of the issuer or registrant, may not
offer or sell registered securities in this state if the issuer or registrant is in violation
of the state's securities laws. A "security" is defined broadly and includes any stock,
note, bond, share in a business trust, investment contract, commodity futures
contract, or limited partnership interest, as well as many other financial interests.
A "security" also presumptively includes an interest in a limited liability company
(LLC) if certain conditions are met, but does not include a fixed or variable insurance
policy or annuity contract.
Under current law, a security may be registered with the division by
coordination or by qualification. Registration by coordination may be used for any
security for which a federal registration statement has been filed with the SEC in
connection with the same offering and has not yet become effective. For registration
by coordination, a registration statement must contain specified information, be
accompanied by certain documents, such as the corresponding federal filings, and
include a consent to service of process. Registration by coordination generally
becomes effective automatically at the moment the federal registration statement
becomes effective. Any security may be registered by qualification. For registration
by qualification, the registration statement must contain specified information, be
accompanied by a consent to service of process, and contain further information and
documents required by the division. In addition to securities registration, the
division may impose notice filing requirements on the issuer of any federal covered
security except an exchange-listed security. The division may require the filing with
the division of certain documents filed with the SEC related to the same federal
covered security and the payment of a notice filing fee. Where a notice filing
requirement can be imposed and is imposed, if the issuer fails to comply with the
requirement, the division can prohibit offers and sales of the federal covered security
in this state, if certain conditions are met.
Under current law, certain securities are exempt from registration with the
division, including: securities of the United States or a state or political subdivision
of a state; securities of a bank or public utility; securities listed, or approved for
listing, on a securities exchange designated by the division; securities of certain
nonprofit organizations; certain commercial paper with a maturity of nine months
or less; investment contracts related to certain employee benefit plans; common
stock of a service corporation or cooperative; certain security options and commodity
futures contracts; securities issued by a broker-dealer to its officers or employees;
certain securities issued in connection with an insurance corporation conversion to
a mutual insurance corporation; and any security for which the division finds
registration unnecessary for the protection of investors. In addition, even when a
security is not exempt, a transaction involving the security may be exempt. Exempt
securities transactions include the following: isolated nonissuer transactions;
unsolicited nonissuer transactions through a broker-dealer; transactions between
issuers and underwriters; nonissuer sales at a price reasonably related to the market
price if the issuer is registered with the SEC or exempt from federal registration or
if securities of the same class have been registered with the division within the
preceding two years or registered with the SEC and certain other conditions are met;
an offer or sale to the issuer, a bank or other financial institution, an insurer, a
broker-dealer, an investment adviser or federal covered adviser, an investment
company or pension or profit-sharing trust, state or federal or local government, or
an accredited investor, as defined below (collectively "sophisticated investors");
certain transactions in debt secured by a mortgage and sold as a unit
(mortgage-backed securities); an offer or sale of a preorganization subscription; an
offer or sale of its securities by an issuer having its principal office in this state to not
more than 25 persons, excluding sophisticated investors, if certain conditions are
met; a transaction resulting from offers to not more than 25 persons in this state,
excluding sophisticated investors, during a 12-month period, if certain conditions
are met, regardless of the issuer's presence in this state; a transaction resulting from
an offer to the issuer's existing security holders, if certain conditions are met; certain
merger, reorganization, stock split, or stock dividend transactions; certain debt
transactions of nonprofit organizations; certain offers, but not sales, of securities for
which both federal and state registration statements have been filed; an offer or sale
of securities made in reliance on the federal Regulation D, SEC Rule 505, exemption
related to limited offerings not exceeding $5,000,000, if certain conditions are met;
and any other transaction as to which the division finds that registration is not
necessary or appropriate for the protection of investors. An "accredited investor,"
which is a type of sophisticated investor, is defined by federal and state law to include
financial institutions, individuals with a specified minimum net worth or income,
business entities with certain minimum assets, and corporate executives of a
security's issuer.
Current law authorizes the division, by order after certain required
proceedings, to deny or revoke any security exemption or security transaction
exemption or to issue a stop order denying effectiveness to, or suspending or revoking
the effectiveness of, a registration statement under specified circumstances.
This bill, in adopting the USA 2002 with some modification, retains the general
structure and content of current law with respect to securities registration. The bill
continues to generally require offerings of securities that are not federal covered
securities to be registered unless exempt, provides for registration by coordination
and registration by qualification, provides for notice filing as to some federal covered
securities, recognizes securities exemptions and securities transactions exemptions,
and authorizes the division to modify certain of these general requirements and to
deny or revoke exemptions and issue stop orders. However, the bill also includes a
number of changes to current law with respect to securities registration and
exemptions, including the following:
1. The bill makes some modifications to the definition of "security." The bill
expressly provides that a security may be uncertificated, that is, paperless. The bill
modifies the definition of "security" with respect to an interest in an LLC and adds
specific language related to interests in limited liability partnerships. The bill
expressly includes viatical settlements of insurance contracts in the definition of
"security." The bill expands the definition of "security" with respect to certain
derivatives and includes language to clarify when an investment in a common
enterprise is a security. The bill also excludes from the definition of "security"
interests in pension plans subject to the Employee Retirement Income Security Act
of 1974. The bill authorizes the division to exclude certain investment contracts from
the definition of "security."
2. The bill makes certain modifications with respect to exempt securities. The
bill modifies and broadens the exemption for federal covered securities and
derivative securities, such as options. The bill exempts securities issued by
insurance companies. The bill modifies the exemption for securities issued by
nonprofit organizations, providing greater discretionary authority to the division
with respect to such securities, and exempts certain equipment trust certificates.
The bill eliminates specific exemptions related to commercial paper, employee
pension plans, common stock of service corporations, securities issued by
broker-dealers, and commodity futures contracts.
3. The bill makes certain modifications with respect to exempt securities
transactions. Instead of the sophisticated investors exemption under current law,
the bill provides a transaction exemption for a sale or offer to an institutional
investor, an accredited investor, a federal covered investment adviser, or any other
person exempted by the division. The bill defines "institutional investor" to include,
subject to certain limitations, all of the following: banks and other financial
institutions; insurance companies; investment companies; registered
broker-dealers; employee pension and profit-sharing plans, employee benefit plans
of state and local governments, and trusts of financial institutions related to these
plans; business and nonprofit entities, small business investment companies, and
private business development companies, each with total assets in excess of
$10,000,000; federal covered investment advisers acting for their own accounts;
qualified institutional buyers and major U.S. institutional investors, as defined by
federal law, but generally including investment companies, financial institutions,
insurance companies, investment advisers, and other entities that act for their own
account and invest at least $100,000,000 or have assets under management of at
least $100,000,000; any other entity of institutional character with total assets in
excess of $10,000,000; and any other person specified by the division. The bill
includes various changes related to, and new exemptions for, nonissuer transactions,
including those related to foreign issuers, SEC reporting companies, certain debt
securities, and transactions by certain federal covered investment advisers. The bill
includes new exemptions for certain security swaps, solicitations of interest prior to
the effective date of a registration statement, and rescission offers and transactions.
The bill modifies the exemption for certain mortgage-backed securities. The bill
eliminates a transaction exemption related to nonprofit debt issues, so that
nonprofit-related exemptions are entirely securities exemptions rather than
transaction exemptions. The bill also eliminates the specific transaction exemption
related to limited offerings under SEC Rule 505.
4. The bill modifies the definition of a securities "issuer." The bill adds several
new definitions, including definitions of "bank," "depository institution,"
"institutional investor," and "international banking institution." The bill also adds
new definitions of "filing," "record," and "sign" to clearly recognize electronic
information, documents, and filings.
The bill also varies from, or adopts optional language under, the USA 2002 in
a number of respects. These variations, or the adoption of this optional language, are
generally recommended by the WUSA Study Group to retain aspects of current law
or current division rules with respect to certain matters, including: the definitions
of "issuer," "security," and "viatical settlement investment"; the security exemption
for government securities, relating to industrial revenue bonds; the security
transaction exemption for unsolicited broker-dealer transactions, relating to
documentation requirements; the security transaction exemption for sales to
institutional investors, adding accredited investors; the security transaction
exemptions for certain limited offerings and preorganization subscriptions; the
security transaction exemption for offers to existing security holders, to add a
ten-day notice filing requirement; division authority to deny or revoke exemptions;
filing and reporting procedures for open-end mutual funds, and extension
procedures for unit investment trusts and closed-end mutual funds; division
authority relating to registration requirement waivers, reports by certain
professionals, and division comment letters; escrow of securities and impoundment
of proceeds; trust indentures for registered debt securities; and security merit
review.
Registration of securities professionals
Under current law, unless exempt from licensing, a person may not transact
business in this state as a broker-dealer or an agent unless the person is licensed as
a broker-dealer or an agent, even if the person is also federally registered as such
with the SEC. A "broker-dealer" is any person, whether an individual or an entity,
engaged in the business of effecting transactions in securities for the account of
others or for the person's own account, but does not include any of the following: an
agent; an issuer; a bank, savings institution, or trust company, when effecting
transactions for its own account or executing orders as an agent for a purchaser or
seller; a personal representative, guardian, conservator, or pledgee; a person whose
dealings in securities are limited to transactions in mortgage-backed securities; a
person licensed as a real estate broker who has only isolated and incidental
transactions in securities; the State of Wisconsin Investment Board (SWIB); or any
other person designated by the division. An "agent" is an individual other than a
broker-dealer who represents a broker-dealer or a securities issuer in effecting or
attempting to effect transactions in securities, but does not include an individual
who represents an issuer in effecting transactions in an exempt security, in effecting
most exempt transactions, or in effecting other transactions if no commission is paid
for soliciting persons in this state. Current law provides a number of exemptions to
the broker-dealer and agent licensing requirements, including exemptions for
persons who effect transactions exclusively for sophisticated investors; persons who
represent broker-dealers in effecting certain de minimus transactions for
preexisting clients who were residents in the state where the agent is registered for
at least 30 days in the previous one-year period; an agent acting exclusively for a
securities issuer with respect to certain exempt transactions involving accredited
investors; and persons who give group presentations at broker-dealer meetings or
seminars where no solicitation, offer, or sale is made. A broker-dealer or issuer may
not employ as an agent an individual who is not licensed or exempt from licensing.
An agent generally may not represent more than one broker-dealer or issuer and
may not simultaneously represent both a broker-dealer and an issuer. However,
dual representation by an agent of issuers that are limited partnerships or
investment companies is permissible if certain conditions are met.
Under current law, unless exempt from licensing, a person may not transact
business in this state as an investment adviser unless the person is licensed as an
investment adviser. An "investment adviser" is a person, whether an individual or
an entity, that, for compensation, engages in the business of advising others, directly
or through publications or electronically, as to the value of securities or as to the
advisability of purchasing or selling securities or that, for compensation and as a part
of a regular business, issues analyses or reports concerning securities, but does not
include a bank, savings institution, or trust company; certain professionals, such as
lawyers and accountants; broker-dealers or agents whose performance of these
services is solely incidental to the conduct of their own business and who receive no
special compensation for these services; newspaper, magazine, and other publishers;
SWIB; federal covered advisers, unless they fail to pay applicable fees to the division;
persons whose advice, analyses, or reports relate only to certain exempt government
securities or who are otherwise identified by SEC rule as excluded from the definition
of investment adviser; an investment adviser representative; or other persons
designated by the division. A "federal covered adviser" is a person, whether an
individual or an entity, that is registered with the SEC as an investment adviser.
Investment advisers that have assets under management of at least $25,000,000 or
that are advisers to investment companies are federal covered advisers registered
exclusively with the SEC. Current law provides a number of exemptions to the
investment adviser licensing requirement, including exemptions for persons who are
licensed as broker-dealers; persons whose only clients in this state are sophisticated
investors; persons who do not have a place of business in this state and, during the
preceding 12-month period, have had no more than five in-state clients who are not
sophisticated investors.
Although federal covered advisers are excluded from the definition of
"investment adviser" and state registration of federal covered advisers is preempted
under the NSMIA, federal covered advisers are generally subject to notice filing
requirements under current law. A federal covered adviser must comply with notice
filing requirements to transact investment advisory business in this state unless the
federal covered adviser's only clients who are residents of this state are sophisticated
investors or the federal covered adviser does not have a place of business in this state
and, during the preceding 12-month period, has advised no more than five in-state
clients who are not sophisticated investors.
Under current law, unless exempt from licensing, a person may not transact
business in this state as an investment adviser representative unless the person is
licensed as an investment adviser representative. An "investment adviser
representative" is, with certain exceptions, a "supervised person," as defined by the
division by rule, of an investment adviser or federal covered adviser unless the
supervised person does not regularly solicit or communicate with clients or provides
only impersonal investment advice or is a third-party solicitor, as defined by the
division by rule. Current law provides a number of exemptions to the investment
adviser representative licensing requirement, including exemptions for persons who
are licensed as agents; persons whose only clients in this state are sophisticated
investors; and persons who do not have a place of business in this state and, during
the preceding 12-month period, have had no more than five in-state clients who are
not sophisticated investors.
Under current law, a licensed investment adviser may not employ as an
investment adviser representative a person who is neither licensed nor exempt from
licensing. A person employed or supervised by, or associated with, a federal covered
adviser may not act as an investment adviser representative in this state unless the
person is licensed or exempt from licensing.
Under current law, a broker-dealer, agent, investment adviser, or investment
adviser representative may obtain a license by filing with the division, or with an
organization designated by the division, such as Web-CRD or IARD, an application
together with a consent to service of process. The application must contain all
information required by the division by rule. Unless an exception applies, a federal
covered adviser must file with the division a notice filing together with payment of
a notice filing fee. The notice filing must consist either of a notice filing form
prescribed by the division or a copy of documents filed with the SEC. The division
may, upon appropriate proceedings, deny an application or suspend or revoke a
license or censure a licensee under certain conditions, including if the applicant or
licensee filed an application that is materially false or misleading with respect to any
material fact; willfully violated state or federal securities laws; has been convicted
of certain criminal offenses or has been enjoined by a court; has engaged in dishonest
or unethical practices in the securities or investment advisory business or has taken
unfair advantage of a customer; is insolvent; is unqualified; or has failed reasonably
to supervise agents or employees.
Under current law, the division may prescribe standards of qualification with
respect to training, experience, and knowledge of, and provide for examinations of,
broker-dealers, agents, investment advisers, and investment adviser
representatives. The division may also, subject to federal law, establish minimum
net capital requirements for licensed broker-dealers and investment advisers and
require licensed broker-dealers and investment advisers who have custody of or
discretionary authority over client funds or securities to post bonds. The division
must cooperate with other securities administrators and regulatory authorities to
simplify and coordinate license application, notice filing, and renewal procedures.
A licensed broker-dealer, agent, or investment adviser may not transact business in
this state if it is in violation of the state's securities laws.
This bill, in adopting the USA 2002 with some modification, retains the general
structure and content of current law with respect to securities professionals.
Although the bill changes the terminology of regulation from "licensing" to
"registration," the bill continues to require registration of entities and individuals in
a similar manner, contains exemptions to registration, and retains similar
administrative and supervisory authority by the division over these entities and
individuals. However, the bill also includes a number of changes to current law with
respect to securities professionals, including the following:
1. The bill eliminates specific exclusions under current law from the definition
of a broker-dealer for a personal representative, guardian, conservator, or pledgee;
a person whose dealings in securities are limited to transactions in mortgage-backed
securities; a person licensed as a real estate broker who has only isolated and
incidental transactions in securities; and SWIB. The bill also changes the specific
exclusion for a bank, savings institution, or trust company, consistent with federal
law under the Gramm-Leach-Bliley Act of 1999, so that the exclusion applies only
to a bank or savings institution whose activities as a broker-dealer are limited to
certain activities specified under federal law, such as third-party brokerage services,
trust activities, custodial services, and de minimus transactions; buying or selling
securities for its own account, including in a fiduciary capacity, but not as a part of
a regular business; or buying or selling certain securities, under certain conditions,
as specified under federal law. The bill also excludes from the definition of
broker-dealer an international banking institution and a bank or savings institution
that, in 1999, was a member of a national securities exchange and was required by
SEC rule to comply with federal broker-dealer regulations.
2. The bill also makes changes to the exemptions to broker-dealer registration.
The bill eliminates the group presentation exemption under current law and changes
the exemption for transactions exclusively for sophisticated investors. The bill
creates several new exemptions to broker-dealer registration. Under the bill, a
broker-dealer is exempt from registration if its only transactions effected in this
state are with the following: the issuer of the securities involved in the transactions;
a broker-dealer registered with the division or exempt from registration;
institutional investors, as defined above; accredited investors, as defined above, but
not including individuals; a nonaffiliated federal covered investment adviser with
investments under management in excess of $100,000,000 acting for the account of
others pursuant to discretionary authority in a signed record; a bona fide preexisting
customer whose principal place of residence is not in the state if the broker-dealer
is registered with the SEC or with the state in which the customer maintains a
principal place of residence; a bona fide preexisting customer whose principal place
of residence is in this state if the broker-dealer was not present in this state when
the customer relationship was established, if the broker-dealer is registered with
the SEC or with the state in which the customer relationship was established and
the customer maintained his or her residence, and if, with certain exceptions, the
broker-dealer files an application for registration within 45 days after the
customer's first transaction in this state and no further transaction is effected more
than 75 days later; or any other person exempted by the division. In addition, the
division may permit a broker-dealer registered in a foreign jurisdiction that does not
have a place of business in this state to effect certain transactions, including with
individuals from the same jurisdiction who are temporarily present in this state and
with whom the broker-dealer had a bona fide customer relationship before the
individual entered the United States, and may permit an agent to effect these
transactions for the broker-dealer.
3. The bill eliminates all specific exclusions under current law from the
definition of agent but provides the division with authority to exclude individuals
from this definition. The bill also makes changes to the exemptions to agent
registration. The bill changes the exemptions for transactions exclusively for
sophisticated investors and transactions involving accredited investors. The bill
makes a slight change in the wording related to the exemption for de minimus
transactions for certain preexisting clients. The bill creates several new exemptions
to agent registration, including exempting from agent registration an individual who
represents an exempt broker-dealer; represents an issuer with respect to an offer or
sale of the issuer's own securities and who receives no commission; represents an
issuer in effecting most exempt transactions; with exceptions, represents an issuer
that effects transactions solely in federal covered securities; represents a
broker-dealer registered with the division or exempt from registration in the offer
and sale of securities for an account of a nonaffiliated federal covered investment
adviser with investments under management in excess of $100,000,000 acting for
the account of others pursuant to discretionary authority in a signed record;
represents an issuer in connection with the purchase of the issuer's own securities;
represents an issuer or broker-dealer and who restricts participation to performing
clerical or ministerial acts; represents a broker-dealer and effects transactions in
this state exclusively with certain customers (those whose transactions with a
broker-dealer do not require the broker dealer to be registered); and is otherwise
exempted by the division.
4. The bill eliminates specific exclusions under current law from the definition
of "investment adviser" for trust companies that are not banks and for SWIB. The
bill also modifies the exclusion under current law related to federal covered advisers,
so that a federal covered adviser is excluded regardless of whether it pays to the
division notice filing fees. The bill specifically provides that "investment adviser"
includes a financial planner that provides investment advice for compensation. The
bill also makes changes to the exemptions to investment adviser registration. The
bill eliminates the specific exemption for a licensed broker-dealer and changes the
exemptions for persons whose only clients in this state are sophisticated investors
and persons who do not have a place of business in this state and, during the
preceding 12-month period, have had no more than five in-state clients who are not
sophisticated investors. Under the bill, the following persons are exempt from
investment adviser registration: persons whose only clients in this state are federal
covered investment advisers, investment advisers registered with the division,
broker-dealers registered with the division, institutional investors, or accredited
investors other than individuals; persons whose only clients in this state are bona
fide preexisting clients whose principal places of residence are not in this state if the
investment adviser is registered or exempt from registration in the state in which the
clients maintain principal places of residence; persons whose only clients in this
state are clients exempted by the division; persons who do not have a place of
business in this state and who have had, during the preceding 12 months, no more
than five in-state clients in addition to the institutional investors, accredited
investors, federal covered investment advisers, registered investment advisers or
broker-dealers, or bona fide preexisting clients to which another exemption applies;
and any other person exempted by the division.
5. The bill completely eliminates the current law definition of "investment
adviser representative" and creates a new definition. Under the bill, an "investment
adviser representative" is an individual employed by or associated with an
investment adviser or federal covered investment adviser who makes
recommendations or gives investment advice regarding securities, manages
accounts or portfolios of clients, determines which recommendation or advice
regarding securities should be given, provides investment advice, receives
compensation to solicit, offer, or sell investment advice, or supervises employees who
perform any of these activities. However, "investment adviser representative"
includes an individual employed by or associated with a federal covered investment
adviser only if the individual has a place of business in this state and the individual
is either an "investment adviser representative," as defined under a particular
provision of federal law, or is not a supervised person, as defined under a particular
provision of federal law. "Investment adviser representative" also does not include
an individual who performs only clerical or ministerial acts; is an agent whose
performance of investment advice is solely incidental to the conduct of his or her own
business and who receive no special compensation for investment advisory services;
or is excluded by the division. The bill also makes changes to the exemptions to
investment adviser representative registration. The bill eliminates all specific
exemptions to registration under current law and instead provides exemptions from
investment adviser registration for an individual who is employed by or associated
with an investment adviser that is exempt from registration or a federal covered
investment adviser that is excluded from notice filing requirements; an individual
who is employed by or associated with an investment adviser or a federal covered
investment adviser and has in this state only certain clients (those whose business
with an investment adviser do not require the investment adviser to be registered);
and any other individual exempted by the division.
6. Other than a change in terminology from "federal covered adviser" to "federal
covered investment adviser," the bill makes no significant definitional change with
respect to these advisers. The bill makes changes to the exemptions to notice filing
for federal covered investment advisers. The bill changes the exemptions for federal
covered investment advisers whose only clients in this state are sophisticated
investors and for such advisers who do not have a place of business in this state and,
during the preceding 12-month period, have had no more than five in-state clients
who are not sophisticated investors. Under the bill, federal covered investment
advisers that do not have a place of business in this state are exempt from notice
filing if their only clients in this state are any of the following: federal covered
investment advisers; investment advisers registered with the division;
broker-dealers registered with the division; institutional investors; accredited
investors other than individuals; bona fide preexisting clients whose principal places
of residence are not in this state; or other clients specified by the division. Federal
covered investment advisers that do not have a place of business in this state are also
exempt from notice filing if they have had, during the preceding 12 months, no more
than five in-state clients in addition to the institutional investors, accredited
investors, federal covered investment advisers, registered investment advisers or
broker-dealers, or bona fide preexisting clients to which another exemption applies.
The division may also exempt from notice filing any other federal covered investment
adviser.
7. The bill provides for qualified immunity for broker-dealers, agents,
investment advisers, federal covered investment advisers, and investment adviser
representatives related to statements they make in records required by the division.
The bill also varies from, or adopts optional language under, the USA 2002 in
a number of respects. These variations, or the adoption of this optional language, are
generally recommended by the WUSA Study Group to retain aspects of current law
or current division rules with respect to certain matters, including: broker-dealer
registration exemptions relating to location of the broker-dealer's place of business,
transactions with entity-type accredited investors, unsolicited liquidation
transactions for bona fide preexisting customers, de minimis exemptions, and
governmental securities dealers; commissions paid to broker-dealers; limited
dual-agent registration for limited partnerships or investment companies;
investment adviser registration exemptions with respect to entity-type accredited
investors, bona fide clients residing out-of-state, and reliance; limits on
employment by investment advisers; investment adviser referral fees; federal
covered investment adviser notice filing exemptions related to entity-type
accredited investors and notice filing expiration; filing of registration applications
with third-party organizations designated by the division; the effective date of
registration applications; and registration application requirements related to a
change of control of a broker-dealer or investment adviser.
Securities fraud, enforcement, and administration
Current law includes numerous provisions prohibiting fraud, in various forms,
in connection with securities transactions or the offering or sale of securities,
including: making any untrue statement of a material fact or omitting a material
fact necessary to make a statement not misleading in connection with the offer, sale,
or purchase of a security; engaging in market manipulation; publishing, circulating,
or using false advertising or, with exceptions, advertising not filed with the division;
and making material false or misleading statements or misleading omissions in
documents filed with the division. Broker-dealers and advisers also may not engage
in fraud or employ manipulative, deceptive, or fraudulent devices.
Under current law, the division administers and enforces the state's securities
laws, has investigative and subpoena powers, may conduct hearings and enter
orders, may bring injunction actions, may summarily take action against a licensee
or summarily take action to prohibit conduct, may impose administrative
assessments for securities law violations, and may promulgate rules and prescribe
forms. The division's orders are generally subject to judicial review. Administrative
assessments imposed by the division are appropriated for the division's investor
education program.
Under current law, a person who violates the state's securities laws may be
subject to criminal or civil liability or both. A person who willfully violates the state's
securities laws, with certain exceptions, is guilty of a Class H felony, punishable by
a maximum fine of $10,000 or a maximum term of imprisonment of six years or both.
The division may refer violations for criminal prosecution to the attorney general or
a district attorney. A person who violates the state's securities laws by offering or
selling a security, by purchasing a security, or by willfully participating in market
manipulation activity, may be civilly liable to, respectively, the purchaser or seller
for specified damages, including interest and reasonable attorney fees, or equitable
relief. Certain persons may also be held civilly liable for the violations of others.
However, a civil action must be commenced within three years after the act or
transaction constituting the violation, but this period of limitation may be extended
under certain circumstances. A purchaser or seller also may not commence an action
if, before suit is commenced, the purchaser or seller receives a written rescission offer
providing specified information about the violation and offering to resolve liability
for the violation.
This bill, in adopting the USA 2002 with some modification, retains the general
structure and content of current law with respect to securities fraud, enforcement,
and administration. However, the bill also includes a number of changes to current
law, including the following:
1. The bill authorizes the division to use some new enforcement techniques,
such as cease and desist orders, asset freezes, and rescission orders. The bill also
expands the division's authority to assist securities regulators in other jurisdictions.
The bill also authorizes the division to seek assistance from district attorneys, the
attorney general, or appropriate federal authorities in judicially enforcing
subpoenas and further authorizes courts to enforce the division's cease and desist
orders.
2. The bill modifies the statute of limitations in actions to impose civil liability.
Under the bill, a person must bring an action for relief based upon sale of an
unregistered security or sale by an unregistered securities professional within one
year after the violation. For other claims, a person must bring an action for relief
within the earlier of two years after discovery of the facts constituting the violation
or five years after the violation.
3. With regard to some securities professionals, such as agents, the bill turns
definitional exclusions under current law into registration exemptions, which
results in an expansion of the scope of antifraud provisions; while these individuals
still would not be required to register with the division, they would be subject to the
antifraud provisions of the bill.
4. The bill modifies current law relating to rescission offers arising from
asserted liability for violations, and recognizes a transaction exemption for
rescission offers made in compliance with this rescission offer provision.
5. The bill modifies current law relating to confidentiality of certain
information and documents of the division.
6. The bill slightly changes the division's current investor education program
to an investor education and training program.
The bill also varies from, or adopts optional language under, the USA 2002 in
a number of respects. These variations, or the adoption of this optional language, are
generally recommended by the WUSA Study Group to retain aspects of current law
or current division rules with respect to certain matters, including: fee provisions
for division filings; the division's investigative authority related to acting on
broker-dealer and investment adviser registration applications; division authority
related to grounds for discipline, censure, penalties, and negotiated settlements in
disciplinary actions; continuing education requirements for registered persons;
penalty provisions for criminal securities law violations; certain aspects of civil
liability; administrative assessments by the division and the investor education and
training program; the division's injunctive authority; confidential information and
records of the division; judicial review of summarily issued orders of the division; and
the state's jurisdiction with regard to offers not directed to or received in this state.
For further information see the state fiscal estimate, which will be printed as
an appendix to this bill.
The people of the state of Wisconsin, represented in senate and assembly, do
enact as follows:
AB816, s. 1
1Section
1. 19.42 (12) of the statutes is amended to read:
AB816,14,52
19.42
(12) "Security" has the meaning given under s.
551.02 (13) 551.102 (28),
3except that the term does not include a certificate of deposit or a deposit in a savings
4and loan association, savings bank, credit union or similar association organized
5under the laws of any state.
AB816, s. 2
6Section
2. 20.144 (1) (i) of the statutes is amended to read:
AB816,15,67
20.144
(1) (i)
Investor education and training fund. The amounts in the
8schedule for educating residents of this state about securities and franchise
1investments as provided in ss.
551.605 (2)
551.601 (4) and 553.605 (2)
and for any
2other purpose specified in s. 551.601 (4). All moneys received from administrative
3assessments under ss.
551.605 (1) 551.604 (4) and 553.605 (1) shall be credited to this
4appropriation. If the unencumbered balance in this appropriation account exceeds
5$100,000 immediately before the end of any fiscal year, the excess shall lapse to the
6general fund at the end of that fiscal year.
AB816, s. 3
7Section
3. 20.923 (8) of the statutes is amended to read:
AB816,15,148
20.923
(8) Deputies. Salaries for deputies appointed pursuant to ss. 13.94 (3)
9(b), 15.04 (2) and
551.51 551.601 (1) shall be set by the appointing authority. The
10salary shall not exceed the maximum of the salary range one range below the salary
11range of the executive salary group to which the department or agency head is
12assigned. The positions of assistant secretary of state, assistant state treasurer and
13associate director of the historical society shall be treated as unclassified deputies
14for pay purposes under this subsection.
AB816, s. 4
15Section
4. 21.72 (1) (a) 12. of the statutes is amended to read:
AB816,15,1816
21.72
(1) (a) 12. A license or certificate of registration issued by the department
17of financial institutions, or a division of it, under ss. 138.09, 138.12, 217.06, 218.0101
18to 218.0163, 218.02, 218.04, 218.05, 224.72, or 224.93 or subch.
III IV of ch. 551.
AB816, s. 5
19Section
5. 25.186 (1) (a) of the statutes is amended to read:
AB816,15,2120
25.186
(1) (a) "Broker-dealer" has the meaning given in s.
551.02 (3) 551.102
21(4).
AB816, s. 6
22Section
6. 25.186 (1) (c) of the statutes is amended to read:
AB816,15,2323
25.186
(1) (c) "Security" has the meaning given in s.
551.02 (13) 551.102 (28).
AB816, s. 7
24Section
7. 25.186 (2) (a) of the statutes is amended to read:
AB816,16,5
125.186
(2) (a) Of the total funds that are expended by the board for securities
2trading brokerage commissions in any fiscal year, the board shall pay at least 5% of
3the total funds in securities trading brokerage commissions to broker-dealers that
4are
licensed registered under s.
551.31 551.406, that are headquartered in this state
5and whose principal business operations are located in this state.
AB816, s. 8
6Section
8. 49.853 (1) (c) 6. of the statutes is amended to read:
AB816,16,77
49.853
(1) (c) 6. A broker-dealer, as defined in s.
551.02 (3) 551.102 (4).
AB816, s. 9
8Section
9. 49.857 (1) (d) 12. of the statutes is amended to read:
AB816,16,119
49.857
(1) (d) 12. A license or certificate of registration issued under ss. 138.09,
10138.12, 217.06, 218.0101 to 218.0163, 218.02, 218.04, 218.05, 224.72, 224.93 or
11subch.
III IV of ch. 551.
AB816, s. 10
12Section
10. 73.0301 (1) (d) 6. of the statutes is amended to read:
AB816,16,1613
73.0301
(1) (d) 6. A license or certificate of registration issued by the
14department of financial institutions, or a division of it, under ss. 138.09, 138.12,
15217.06, 218.0101 to 218.0163, 218.02, 218.04, 218.05, 224.72, 224.93 or under subch.
16III IV of ch. 551.
AB816, s. 11
17Section
11. 183.1303 of the statutes is amended to read:
AB816,16,20
18183.1303 Securities law application. An interest in a limited liability
19company may be a security, as
defined in ss. 551.02 (13) (b) and (c) specified in s.
20551.102 (28) (e).
AB816, s. 12
21Section
12. 226.14 (8) of the statutes is amended to read:
AB816,16,2422
226.14
(8) Every such trust issuing or selling, or offering for sale, beneficial
23certificates in this state, shall be subject to
the
any applicable restrictions and
24limitations provided in ch. 551.
AB816,17,6
3227.54 Stay of proceedings. The institution of the proceeding for review
4shall not stay enforcement of the agency decision. The reviewing court may order a
5stay upon such terms as it deems proper, except as otherwise provided in ss. 49.17
6(7), 96.43,
and 448.02 (9)
and 551.62.
AB816, s. 14
7Section
14. 421.202 (8) of the statutes is amended to read:
AB816,17,108
421.202
(8) Transactions in securities accounts or securities transactions by or
9with a broker-dealer, as defined in s.
551.02 (3), licensed 551.102 (4), registered 10under ch. 551.
AB816, s. 15
11Section
15. 422.501 (2) (b) 7. of the statutes is amended to read:
AB816,17,1412
422.501
(2) (b) 7. A broker-dealer or agent
licensed registered under s.
551.31 13551.406 if the broker-dealer or agent is acting within the course and scope of that
14license.
AB816, s. 16
15Section
16. Chapter 551 of the statutes is repealed and recreated to read:
AB816,17,1616
CHAPTER 551
AB816,17,1717
WISCONSIN UNIFORM SECURITIES LAW
AB816,17,1818
SUBCHAPTER I
AB816,17,1919
GENERAL PROVISIONS
AB816,17,21
20551.101 Short title. This chapter shall be known and may be cited as the
21"Wisconsin Uniform Securities Law."
AB816,17,22
22551.102 Definitions. In this Chapter, unless the context otherwise requires:
AB816,17,24
23(1m) "Administrator" means the administrator of the division of securities in
24the department of financial institutions.
AB816,18,7
1(2) "Agent" means an individual, other than a broker-dealer, who represents
2a broker-dealer in effecting or attempting to effect purchases or sales of securities
3or represents an issuer in effecting or attempting to effect purchases or sales of the
4issuer's securities. But a partner, officer, or director of a broker-dealer or issuer, or
5an individual having a similar status or performing similar functions, is an agent
6only if the individual otherwise comes within the term. The term does not include
7an individual excluded by rule adopted or order issued under this chapter.
AB816,18,8
8(3) "Bank" means any of the following:
AB816,18,99
(a) A banking institution organized under the laws of the United States.
AB816,18,1010
(b) A member bank of the Federal Reserve System.
AB816,18,1711
(c) Any other banking institution, whether incorporated or not, doing business
12under the laws of a state or of the United States, a substantial portion of the business
13of which consists of receiving deposits or exercising fiduciary powers similar to those
14permitted to be exercised by national banks under the authority of the Comptroller
15of the Currency pursuant to section 1 of Public Law 87-722 (
12 USC 92a), and which
16is supervised and examined by a state or federal agency having supervision over
17banks, and which is not operated for the purpose of evading this chapter.