SB483: Bill Text

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:

SB483, s. 1 Section 1. 19.42 (12) of the statutes is amended to read:

SB483,14,5 19.42 (12) "Security" has the meaning given under s. 551.02 (13) 551.102 (28), except that the term does not include a certificate of deposit or a deposit in a savings and loan association, savings bank, credit union or similar association organized under the laws of any state.

SB483, s. 2 Section 2. 20.144 (1) (i) of the statutes is amended to read:

SB483,15,6 20.144 (1) (i) Investor education and training fund. The amounts in the schedule for educating residents of this state about securities and franchise investments as provided in ss. 551.605 (2) 551.601 (4) and 553.605 (2) and for any other purpose specified in s. 551.601 (4). All moneys received from administrative assessments under ss. 551.605 (1) 551.604 (4) and 553.605 (1) shall be credited to this appropriation. If the unencumbered balance in this appropriation account exceeds $100,000 immediately before the end of any fiscal year, the excess shall lapse to the general fund at the end of that fiscal year.

SB483, s. 3 Section 3. 20.923 (8) of the statutes is amended to read:

SB483,15,14 20.923 (8) Deputies. Salaries for deputies appointed pursuant to ss. 13.94 (3) (b), 15.04 (2) and 551.51 551.601 (1) shall be set by the appointing authority. The salary shall not exceed the maximum of the salary range one range below the salary range of the executive salary group to which the department or agency head is assigned. The positions of assistant secretary of state, assistant state treasurer and associate director of the historical society shall be treated as unclassified deputies for pay purposes under this subsection.

SB483, s. 4 Section 4. 21.72 (1) (a) 12. of the statutes is amended to read:

SB483,15,18 21.72 (1) (a) 12. A license or certificate of registration issued by the department of financial institutions, or a division of it, under ss. 138.09, 138.12, 217.06, 218.0101 to 218.0163, 218.02, 218.04, 218.05, 224.72, or 224.93 or subch. III IV of ch. 551.

SB483, s. 5 Section 5. 25.186 (1) (a) of the statutes is amended to read:

SB483,15,21 25.186 (1) (a) "Broker-dealer" has the meaning given in s. 551.02 (3) 551.102 (4).

SB483, s. 6 Section 6. 25.186 (1) (c) of the statutes is amended to read:

SB483,15,23 25.186 (1) (c) "Security" has the meaning given in s. 551.02 (13) 551.102 (28).

SB483, s. 7 Section 7. 25.186 (2) (a) of the statutes is amended to read:

SB483,16,5 25.186 (2) (a) Of the total funds that are expended by the board for securities trading brokerage commissions in any fiscal year, the board shall pay at least 5% of the total funds in securities trading brokerage commissions to broker-dealers that are licensed registered under s. 551.31 551.406, that are headquartered in this state and whose principal business operations are located in this state.

SB483, s. 8 Section 8. 49.853 (1) (c) 6. of the statutes is amended to read:

SB483,16,7 49.853 (1) (c) 6. A broker-dealer, as defined in s. 551.02 (3) 551.102 (4).

SB483, s. 9 Section 9. 49.857 (1) (d) 12. of the statutes is amended to read:

SB483,16,11 49.857 (1) (d) 12. A license or certificate of registration issued under ss. 138.09, 138.12, 217.06, 218.0101 to 218.0163, 218.02, 218.04, 218.05, 224.72, 224.93 or subch. III IV of ch. 551.

SB483, s. 10 Section 10. 73.0301 (1) (d) 6. of the statutes is amended to read:

SB483,16,16 73.0301 (1) (d) 6. A license or certificate of registration issued by the department of financial institutions, or a division of it, under ss. 138.09, 138.12, 217.06, 218.0101 to 218.0163, 218.02, 218.04, 218.05, 224.72, 224.93 or under subch. III IV of ch. 551.

SB483, s. 11 Section 11. 183.1303 of the statutes is amended to read:

SB483,16,20 183.1303 Securities law application. An interest in a limited liability company may be a security, as defined in ss. 551.02 (13) (b) and (c) specified in s. 551.102 (28) (e).

SB483, s. 12 Section 12. 226.14 (8) of the statutes is amended to read:

SB483,16,24 226.14 (8) Every such trust issuing or selling, or offering for sale, beneficial certificates in this state, shall be subject to the any applicable restrictions and limitations provided in ch. 551.

SB483, s. 13 Section 13. 227.54 of the statutes, as affected by 2007 Wisconsin Act 20, is amended to read:

SB483,17,6 227.54 Stay of proceedings. The institution of the proceeding for review shall not stay enforcement of the agency decision. The reviewing court may order a stay upon such terms as it deems proper, except as otherwise provided in ss. 49.17 (7), 96.43, and 448.02 (9) and 551.62.

SB483, s. 14 Section 14. 421.202 (8) of the statutes is amended to read:

SB483,17,10 421.202 (8) Transactions in securities accounts or securities transactions by or with a broker-dealer, as defined in s. 551.02 (3), licensed 551.102 (4), registered under ch. 551.

SB483, s. 15 Section 15. 422.501 (2) (b) 7. of the statutes is amended to read:

SB483,17,14 422.501 (2) (b) 7. A broker-dealer or agent licensed registered under s. 551.31 551.406 if the broker-dealer or agent is acting within the course and scope of that license.

SB483, s. 16 Section 16. Chapter 551 of the statutes is repealed and recreated to read:

SB483,17,16 CHAPTER 551

SB483,17,17 WISCONSIN UNIFORM SECURITIES LAW

SB483,17,18 SUBCHAPTER I

SB483,17,19 GENERAL PROVISIONS

SB483,17,21 551.101 Short title. This chapter shall be known and may be cited as the "Wisconsin Uniform Securities Law."

SB483,17,22 551.102 Definitions. In this Chapter, unless the context otherwise requires:

SB483,17,24 (1m) "Administrator" means the administrator of the division of securities in the department of financial institutions.

SB483,18,7 (2) "Agent" means an individual, other than a broker-dealer, who represents a broker-dealer in effecting or attempting to effect purchases or sales of securities or represents an issuer in effecting or attempting to effect purchases or sales of the issuer's securities. But a partner, officer, or director of a broker-dealer or issuer, or an individual having a similar status or performing similar functions, is an agent only if the individual otherwise comes within the term. The term does not include an individual excluded by rule adopted or order issued under this chapter.

SB483,18,8 (3) "Bank" means any of the following:

SB483,18,9 (a) A banking institution organized under the laws of the United States.

SB483,18,10 (b) A member bank of the Federal Reserve System.

SB483,18,17 (c) Any other banking institution, whether incorporated or not, doing business under the laws of a state or of the United States, a substantial portion of the business of which consists of receiving deposits or exercising fiduciary powers similar to those permitted to be exercised by national banks under the authority of the Comptroller of the Currency pursuant to section 1 of Public Law 87-722 (12 USC 92a), and which is supervised and examined by a state or federal agency having supervision over banks, and which is not operated for the purpose of evading this chapter.

SB483,18,19 (d) A receiver, conservator, or other liquidating agent of any institution or firm included in par. (a), (b), or (c).

SB483,18,22 (4) "Broker-dealer" means a person engaged in the business of effecting transactions in securities for the account of others or for the person's own account. The term does not include any of the following:

SB483,18,23 (a) An agent.

SB483,18,24 (b) An issuer.

SB483,19,5 (c) A bank or savings institution if its activities as a broker-dealer are limited to those specified in sections 3 (a) (4) and 3 (a) (5) of the Securities Exchange Act of 1934 (15 USC 78c (a) (4) and (5)), or a bank that satisfies the conditions specified in section 3 (a) (4) (E) of the Securities Exchange Act of 1934 (15 USC Section 78c (a) (4)).

SB483,19,6 (d) An international banking institution.

SB483,19,7 (e) A person excluded by rule adopted or order issued under this chapter.

SB483,19,8 (5) "Depository institution" means any of the following:

SB483,19,9 (a) A bank.

SB483,19,16 (b) A savings institution, trust company, credit union, or similar institution that is organized or chartered under the laws of a state or of the United States, authorized to receive deposits, and supervised and examined by an official or agency of a state or the United States if its deposits or share accounts are insured to the maximum amount authorized by statute by the Federal Deposit Insurance Corporation, the National Credit Union Share Insurance Fund, or a successor authorized by federal law. The term does not include any of the following:

SB483,19,18 1. An insurance company or other organization primarily engaged in the business of insurance.

SB483,19,19 2. A Morris Plan bank.

SB483,19,20 3. An industrial loan company.

SB483,19,22 (5m) "Division of securities" or "division" means the division of securities in the department of financial institutions.

SB483,19,24 (6) "Federal covered investment adviser" means a person registered under the Investment Advisers Act of 1940.

SB483,20,3 (7) "Federal covered security" means a security that is, or upon completion of a transaction will be, a covered security under section 18 (b) of the Securities Act of 1933 (15 USC 77r (b)) or rules or regulations adopted pursuant to that provision.

SB483,20,5 (8) "Filing" means the receipt under this chapter of a record by the administrator or a designee of the administrator.

SB483,20,6 (9) "Fraud," "deceit," and "defraud" are not limited to common law deceit.

SB483,20,8 (10) "Guaranteed" means guaranteed as to payment of all principal and all interest.

SB483,20,10 (11) "Institutional investor" means any of the following, whether acting for itself or for others in a fiduciary capacity:

SB483,20,11 (a) A depository institution or international banking institution.

SB483,20,12 (b) An insurance company.

SB483,20,13 (c) A separate account of an insurance company.

SB483,20,14 (d) An investment company as defined in the Investment Company Act of 1940.

SB483,20,15 (e) A broker-dealer registered under the Securities Exchange Act of 1934.

SB483,20,22 (f) An employee pension, profit-sharing, or benefit plan if the plan has total assets in excess of $10,000,000 or its investment decisions are made by a named fiduciary, as defined in the Employee Retirement Income Security Act of 1974, that is a broker-dealer registered under the Securities Exchange Act of 1934, an investment adviser registered or exempt from registration under the Investment Advisers Act of 1940, an investment adviser registered under this chapter, a depository institution, or an insurance company.

SB483,21,6 (g) A plan established and maintained by a state, a political subdivision of a state, or an agency or instrumentality of a state or a political subdivision of a state for the benefit of its employees, if the plan has total assets in excess of $10,000,000 or its investment decisions are made by a duly designated public official or by a named fiduciary, as defined in the Employee Retirement Income Security Act of 1974, that is a broker-dealer registered under the Securities Exchange Act of 1934, an investment adviser registered or exempt from registration under the Investment Advisers Act of 1940, an investment adviser registered under this chapter, a depository institution, or an insurance company.

SB483,21,11 (h) A trust, if it has total assets in excess of $10,000,000, its trustee is a depository institution, and its participants are exclusively plans of the types identified in par. (f) or (g), regardless of the size of their assets, except a trust that includes as participants self-directed individual retirement accounts or similar self-directed plans.

SB483,21,15 (i) An organization described in section 501 (c) (3) of the Internal Revenue Code (26 USC 501 (c) (3)), corporation, Massachusetts trust or similar business trust, limited liability company, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $10,000,000.