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2013 - 2014 LEGISLATURE
August 29, 2013 - Introduced by Representatives Craig, Weininger, August,
Bernier, Czaja, Genrich, Hutton, Jagler, Kapenga, Kleefisch, Knodl,
Kooyenga, Kramer, Kuglitsch, Murphy, Nass, Sanfelippo, Schraa, Suder,
Thiesfeldt and Neylon, cosponsored by Senators Vukmir, Gudex, Darling,
Farrow, Grothman, Lasee, Tiffany and T. Cullen. Referred to Committee on
Financial Institutions.
AB350,1,5 1An Act to amend 551.102 (11) (o), 551.202 (13) (am) (intro.), 551.202 (14) (a)
2(intro.), 551.202 (24), 551.401 (1), 551.402 (2) (b), 551.402 (2) (f) and 552.01 (6)
3(c); and to create 227.01 (13) (zz), 551.102 (1g), 551.201 (3) (d), 551.202 (26),
4551.202 (27), 551.205, 551.206, 551.607 (2) (g) and 551.614 (1m) of the statutes;
5relating to: exemptions from securities registration requirements.
Analysis by the Legislative Reference Bureau
Under the Wisconsin Uniform Securities Law (WUSL), 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.
Certain notice filing requirements may apply to federal covered securities. A
"security" is defined broadly under the WUSL and includes stocks, notes, bonds,
investment contracts, limited partnership interests, and certain other financial
interests. This bill creates an exemption from registration for certain securities,
revises requirements under current law regarding certain exempt transactions, and
exempts additional transactions from registration.
Security exemption. Under current law, certain securities are exempt from
registration with the division, including a security issued by certain banks or other
depository institutions, if the security represents an interest in or direct obligation
of the bank or other depository institution or if the security is guaranteed by the bank
or other depository institution. This bill also exempts a security issued by a bank or

savings and loan holding company, as defined under federal law, if the security
represents an interest in or direct obligation of the holding company or if the security
is guaranteed by the holding company. In addition, to qualify for the exemption, the
holding company must have no significant assets other than securities issued by
banks or other depository institutions that are exempt from registration under
current law.
Exempt transactions under current law. Under current law, certain
securities transactions are exempt from registration with the division. Among these
exempt transactions is a sale or offer to sell to an accredited investor, as defined
under federal law. For purposes of this registration exemption, "accredited investor"
includes, among others, banks or other financial institutions; federally registered
broker-dealers; insurance companies; investment companies; private business
development companies; certain persons having designated positions with the
securities issuer; certain trusts with assets of more than $5,000,000; and entities in
which all of the equity owners are accredited investors. For purposes of this
registration exemption, an "accredited investor" also includes any person who comes
within any of the following categories, or whom the securities issuer reasonably
believes comes within any of the following categories, at the time of the sale of the
securities to that person: 1) any natural person who had an individual income in
excess of $200,000 in each of the two most recent years or joint income with that
person's spouse in excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current year; or 2) any natural
person whose individual net worth, or joint net worth with that person's spouse,
exceeds $1,000,000. For purposes of calculating net worth, the person's primary
residence is generally not included as an asset and indebtedness secured by the
residence is generally not included as a liability, but there are exceptions.
For purposes of securities registration exemptions, this bill creates a state law
definition of "accredited investor" and changes the criteria for being an accredited
investor as described in items 1) and 2), above. The bill lowers the individual income
threshold in item 1), above, from $200,000 to $100,000 and lowers the joint income
threshold in item 1), above, from $300,000 to $150,000. The bill also lowers the net
worth threshold in item 2), above, from $1,000,000 to $750,000 and specifies that the
net worth calculation includes the person's primary residence as both an asset and
a liability.
Under current law, another securities transaction that is exempt from
registration with the division is a sale or offer to sell to an institutional investor, as
defined under state law. Current law defines "institutional investor" to include,
among others, banks and other financial institutions; insurance companies;
investment companies; federally registered broker-dealers; private business
development companies meeting certain standards; certain qualified institutional
buyers, as defined under federal law; and other entities of institutional character
with assets of more than $10,000,000.
This bill modifies this definition of "institutional investor," lowering the asset
threshold for other entities of institutional character from $10,000,000 to
$2,500,000. This change affects this registration exemption and also provisions in

which: a broker-dealer is exempt from registration with the division if it engages
in only certain transactions, including transactions with institutional investors;
and, a federal covered investment adviser without a place of business in this state
is exempt from notice filing with the division if it has only certain types of clients in
this state, including institutional investors.
Another securities transaction that is exempt from registration with the
division under current law is a transaction pursuant to an offer directed to not more
than 25 persons in this state, not including accredited investors and institutional
investors, during a 12-month period if certain requirements are met, including that
general solicitation or advertising is not made. The division may modify this
registration exemption, including increasing or decreasing the number of offerees
permitted. This bill modifies this registration exemption to increase the number of
offerees permitted from 25 persons to 50 persons.
Under current law, another securities transaction that is exempt from
registration with the division is an offer or sale by a securities issuer having its
principal office in this state of its securities if the aggregate number of persons
holding all of the issuer's securities, after the securities to be issued are sold, does
not exceed 25, not including accredited investors and institutional investors, and if
certain other requirements are met, including that no advertising is published. This
bill modifies this registration exemption to increase the aggregate number of persons
who may hold the issuer's securities from 25 persons to 50 persons.
Additional exempt transactions. This bill creates two additional
transaction exemptions to securities registration. Under the first exemption, an
offer or sale of a security by an issuer is exempt from registration if the offer or sale
is conducted in accordance with specified requirements, including the following: 1)
the issuer of the security is a business entity organized under the laws of this state
and authorized to do business in this state; 2) the transaction meets exemption
requirements under federal law and rules of the federal Securities and Exchange
Commission (SEC) for intrastate securities offerings; 3) with certain exceptions, the
amount of money to be received for sales of the security in reliance on the exemption
does not exceed either $2,000,000 or $1,000,000, adjusted every five years for
inflation, depending on whether the issuer has or has not, respectively, undergone
a financial audit and made it available; 4) the issuer does not accept more than
$5,000 from any single purchaser unless the purchaser is an accredited investor
under state law; 5) the offering is made exclusively through an Internet site and the
Internet site is registered with the division; 6) the issuer pays a $50 fee and files
notice of the offering with the division at least ten days before commencing the
offering and the notice contains specified information, including a copy of a
disclosure statement to be provided to prospective investors and an escrow
agreement with a financial institution chartered in this state in which the investor
funds will be deposited; 7) the issuer is not an investment company or an SEC
reporting company; 8) the issuer informs all prospective purchasers that the
securities have not been registered and are subject to limitations on resale, includes
a specified legend conspicuously on the cover page of the disclosure document,
requires each purchaser to sign a written or electronic acknowledgment containing

certain information, and obtains from each purchaser evidence that the purchaser
is a resident of this state; 9) all payments for purchase of securities are held by the
issuer in the financial institution identified in the above escrow agreement; 10) a
copy of the disclosure document provided to the division is given to each prospective
investor at the time of the offer; and 11) the issuer has not made an offer or sale of
a different class or series of security under either of these two additional transaction
exemptions during the immediately preceding 12-month period. The bill also
requires the securities issuer to file a quarterly report with the division, and make
it available to investors, for so long as securities issued under the exemption are
outstanding.
In addition, all Internet sites through which the securities are offered are
required to be registered with the division. Registration is accomplished by the
Internet site operator paying a $100 fee and filing a statement with the division that
contains specified information. Also, the bill exempts the Internet site operator from
registration with the division as a broker-dealer if all of the following apply with
respect to the Internet site and its operator: 1) it does not offer investment advice
or recommendations; 2) it does not solicit purchases, sales, or offers to buy securities;
3) it does not compensate persons for the solicitation or based on the sale of securities;
4) it is not compensated based on the amount of securities sold, and it does not hold,
manage, possess, or otherwise handle investor funds or securities; 5) the fee it
charges for securities offerings satisfies specified requirements; 6) it complies with
specified advertising restrictions; and 7) it does not engage in other activities
prohibited by the division. The Internet site operator and the securities issuer must
also maintain records of all offers and sales of securities effected through the Internet
site and provide the division with access to these records on request.
The second transaction exemption to securities registration created by the bill
is similar to the first. Under the second exemption, an offer or sale of a security by
an issuer is exempt from registration if the offer or sale is conducted in accordance
with specified requirements, including the following: 1) the issuer of the security is
a business entity organized under the laws of this state and authorized to do business
in this state; 2) the transaction meets exemption requirements under federal law and
rules of the SEC for intrastate securities offerings; 3) with certain exceptions, the
amount of money to be received for sales of the security in reliance on the exemption
does not exceed either $2,000,000 or $1,000,000, adjusted every five years for
inflation, depending on whether the issuer has or has not, respectively, undergone
a financial audit and made it available; 4) the issuer does not accept more than
$5,000 from any single purchaser unless the purchaser is an accredited investor
under state law; 5) no commission or other remuneration is paid for any person's
participation in the offer or sale of securities unless the person is registered as a
broker-dealer or securities agent; 6) unless permitted by the division, no general
solicitation or general advertising is made for the securities; 7) all funds received
from investors are deposited into a financial institution chartered in this state, and
all the funds are used in accordance with representations made to investors; 8) before
the 100th sale of the security, the issuer pays a $50 fee and provides a notice of the
offering to the division containing specified information; 9) the issuer is not an

investment company or an SEC reporting company; 10) the issuer informs all
purchasers that the securities have not been registered and makes disclosures
required by SEC rule, including disclosures related to limitations on resale of the
securities; and 11) the issuer has not made an offer or sale of a different class or series
of security under either of these two additional transaction exemptions during the
immediately preceding 12-month period.
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:
AB350,1 1Section 1. 227.01 (13) (zz) of the statutes is created to read:
AB350,5,32 227.01 (13) (zz) Adjusts, under s. 551.206, the amounts specified in s. 551.202
3(26) (c) 1. a. and 1. b. and (27) (c) 1. a. and 1. b.
AB350,2 4Section 2. 551.102 (1g) of the statutes is created to read:
AB350,5,105 551.102 (1g) "Accredited investor," except as provided in ss. 551.401 (2) (cm),
6551.403 (2) (a) 2m., and 551.405 (2) (a) 2m., has the meaning given in Rule 501 (a)
7(1), (2), (3), (4), (7), and (8) adopted under the Securities Act of 1933 (17 CFR 230.501
8(a) (1), (2), (3), (4), (7), and (8)) and also means any person who comes within any of
9the following categories, or whom the issuer reasonably believes comes within any
10of the following categories, at the time of the sale of the securities to that person:
AB350,5,1211 (a) 1. Subject to subd. 2., any natural person whose individual net worth, or
12joint net worth with that person's spouse, exceeds $750,000.
AB350,6,213 2. For purposes of calculating net worth under subd. 1., the person's primary
14residence shall be included as an asset and indebtedness secured by the primary
15residence shall be included as a liability. This subdivision does not apply to any
16calculation of a person's net worth made in connection with a purchase of securities
17in accordance with a right to purchase the securities if the right was held by the
18person on July 20, 2010, the person qualified as an accredited investor under 17 CFR

1230.501 (a) (5) on the basis of net worth at the time the person acquired the right, and
2the person held securities of the same issuer, other than this right, on July 20, 2010.
AB350,6,63 (b) Any natural person who had an individual income in excess of $100,000 in
4each of the two most recent years or joint income with that person's spouse in excess
5of $150,000 in each of those years and has a reasonable expectation of reaching the
6same income level in the current year.
AB350,3 7Section 3. 551.102 (11) (o) of the statutes is amended to read:
AB350,6,108 551.102 (11) (o) Any other person, other than an individual, of institutional
9character with total assets in excess of $10,000,000 $2,500,000 not organized for the
10specific purpose of evading this chapter.
AB350,4 11Section 4. 551.201 (3) (d) of the statutes is created to read:
AB350,6,1512 551.201 (3) (d) A bank holding company, as defined in 12 USC 1841 (a), or
13savings and loan holding company, as defined in 12 USC 1467a (a) (1) (D), with no
14significant assets other than securities of one or more entities specified in par. (a),
15(b), or (c).
AB350,5 16Section 5. 551.202 (13) (am) (intro.) of the statutes is amended to read:
AB350,6,2417 551.202 (13) (am) (intro.) An accredited investor, as defined in Rule 501 (a)
18adopted under the Securities Act of 1933 (17 CFR 230.501 (a)),
provided that prior
19to the sale in this state to an accredited investor described in Rule 501 (a) (5) or (6)
20adopted under the Securities Act of 1933
s. 551.102 (1g) (a) or (b), the seller files a
21consent to service of process with the administrator in the form required under s.
22551.611. Failure to file the consent as required is a cause for administrative action
23by the administrator under s. 551.604 but does not result in the loss of this
24exemption. This consent is not required to be filed if any of the following apply:
AB350,6 25Section 6. 551.202 (14) (a) (intro.) of the statutes is amended to read:
AB350,7,5
1551.202 (14) (a) (intro.) Subject to par. (b), any transaction pursuant to an offer
2directed by the offeror to not more than 25 50 persons in this state excluding those
3persons designated in sub. (13) but including persons exempt under sub. (24), during
4any period of 12 consecutive months whether or not the offeror or any of the offerees
5is then present in this state if all of the following apply:
AB350,7 6Section 7. 551.202 (24) of the statutes is amended to read:
AB350,7,137 551.202 (24) Any offer or sale of its securities by an issuer, having its principal
8office in this state, if the aggregate number of persons holding directly or indirectly
9all of the issuer's securities, after the securities to be issued are sold, does not exceed
1025 50, exclusive of persons under sub. (13), if no commission or other remuneration
11is paid or given directly or indirectly for soliciting any person in this state, except to
12broker-dealers and agents licensed in this state, and if no advertising is published
13unless it has been permitted by the division of securities.
AB350,8 14Section 8. 551.202 (26) of the statutes is created to read:
AB350,7,1615 551.202 (26) An offer or sale of a security by an issuer if the offer or sale is
16conducted in accordance with all of the following requirements:
AB350,7,1817 (a) The issuer of the security is a business entity organized under the laws of
18this state and authorized to do business in this state.
AB350,7,2119 (b) The transaction meets the requirements of the federal exemption for
20intrastate offerings in section 3 (a) (11) of the Securities Act of 1933 (15 USC 77c (a)
21(11)) and Rule 147 adopted under the Securities Act of 1933 (17 CFR 230.147).
AB350,7,2522 (c) 1. Except as provided in subd. 2., the sum of all cash and other consideration
23to be received for all sales of the security in reliance on the exemption under this
24subsection, excluding sales to any accredited investor or institutional investor, does
25not exceed the following amount:
AB350,8,7
1a. If the issuer has not undergone and made available to each prospective
2investor and the administrator the documentation resulting from a financial audit
3of its most recently completed fiscal year which complies with generally accepted
4accounting principles, $1,000,000 subject to adjustment under s. 551.206, less the
5aggregate amount received for all sales of securities by the issuer within the 12
6months before the first offer or sale made in reliance on the exemption under this
7subsection.
AB350,8,138 b. If the issuer has undergone and made available to each prospective investor
9and the administrator the documentation resulting from a financial audit of its most
10recently completed fiscal year which complies with generally accepted accounting
11principles, $2,000,000 subject to adjustment under s. 551.206, less the aggregate
12amount received for all sales of securities by the issuer within the 12 months before
13the first offer or sale made in reliance on the exemption under this subsection.
AB350,8,1814 2. An offer or sale to an officer, director, partner, trustee, or individual
15occupying similar status or performing similar functions with respect to the issuer
16or to a person owning 10 percent or more of the outstanding shares of any class or
17classes of securities of the issuer does not count toward the monetary limitation in
18subd. 1. a. and 1. b.
AB350,8,2019 (d) The issuer does not accept more than $5,000 from any single purchaser
20unless the purchaser is an accredited investor.
AB350,8,2321 (e) The offering under this subsection is made exclusively through one or more
22Internet sites and each Internet site is registered with the division under s. 551.205
23(1) (b).
AB350,9,324 (f) Not less than 10 days prior to the commencement of an offering of securities
25in reliance on the exemption under this subsection, the issuer files a notice with the

1administrator, in writing or in electronic form as prescribed by the administrator,
2which the administrator shall make available as an electronic document on the
3department of financial institutions Internet site, containing all of the following:
AB350,9,64 1. A notice of claim of exemption from registration, specifying that the issuer
5will be conducting an offering in reliance on the exemption under this subsection,
6accompanied by the filing fee specified in s. 551.614 (1m).
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