Bill Text: MI HB5273 | 2013-2014 | 97th Legislature | Introduced
Bill Title: Trade; securities; Michigan investment markets for transactions in Michigan securities; authorize and regulate. Amends title & secs. 202, 401 & 501 of 2008 PA 551 (MCL 451.2202 et seq.) & adds art. 4A.
Spectrum: Strong Partisan Bill (Republican 19-1)
Status: (Passed) 2014-10-22 - Assigned Pa 355'14 With Immediate Effect [HB5273 Detail]
Download: Michigan-2013-HB5273-Introduced.html
HOUSE BILL No. 5273
January 30, 2014, Introduced by Reps. Jenkins, Kurtz, Shirkey, Foster, Rendon, Lauwers, Graves, Jacobsen, Schor, Pettalia, Callton, Poleski, Zorn, Yonker, Muxlow, Schmidt, Kelly, Somerville, Kowall and Howrylak and referred to the Committee on Commerce.
A bill to amend 2008 PA 551, entitled
"Uniform securities act (2002),"
by amending the title and section 501 (MCL 451.2501) and by adding
article 4A.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
TITLE
An act to enact the uniform securities act (2002) relating to
the issuance, offer, sale, or purchase of securities; to prohibit
fraudulent practices in relation to securities; to establish civil
and criminal sanctions for violations of the act and civil
sanctions for violation of the rules promulgated pursuant to the
act; to require the registration of broker-dealers, agents,
investment advisers, and securities; to regulate local stock
exchanges; to make uniform the law with reference to securities;
and to repeal acts and parts of acts.
ARTICLE 4A
LOCAL STOCK EXCHANGES
Sec. 451. As used in this article:
(a) "Intrastate offering exemption" means the exemption
described in section 202a or any other exemption from federal
securities regulation under section 3(a)(11) of the securities act
of 1933, 15 USC 77c(a)(11), and SEC rule 147, 17 CFR 230.147.
(b) "List" means to include securities issued by a person in
or on a market or exchange for sale.
(c) "Local stock exchange" means a person that is engaged in
providing a market or exchange at which transactions in securities
that are sold or offered for sale in this state under an intrastate
offering exemption take place. As used in this subdivision, "market
or exchange" includes an online market or exchange or any other
market or exchange operated through a web portal.
(d) "Online" means functioning on or over the internet.
(e) "Personal identifying information" means any information
used to locate or accurately categorize an individual, household,
or business.
(f) "Resident of this state" means 1 of the following, as
applicable:
(i) If a person is an individual, his or her principal
residence is located in this state.
(ii) If a person is a business that is a general partnership or
other form of organization that is not incorporated or organized
under the laws of this state, that person's principal office is
located in this state.
(iii) If the person is a business that is a corporation, limited
liability company, limited partnership, trust, or other form of
legal entity that is incorporated or organized under state law,
that person is incorporated or organized under the laws of this
state.
(g) "Web portal" means an online entity through which
individuals are able to conduct transactions in securities.
Sec. 453. A person shall not transact business in this state
as a local stock exchange unless the person is registered under
this article as a local stock exchange.
Sec. 455. (1) A person shall register as a local stock
exchange by filing a written application, filing a consent to
service of process that complies with section 611, and paying the
fee specified in section 457. Subject to section 461, if a person
complies with this article, the administrator shall register that
person as a local stock exchange.
(2) An application for registration as a local stock exchange
must contain all of the following:
(a) The names, mailing addresses, and telephone numbers of all
individuals serving as principals of the local stock exchange or
possessing at least a 10% ownership interest in the local stock
exchange. As used in this subdivision, "principal" means an
individual who is instrumental in the organization, operation, or
ownership of a business venture.
(b) The uniform resource locator (URL), if applicable, used
primarily to host and facilitate the exchange online.
(c) Any other information requested by the administrator as
necessary to make a determination regarding registration of the
local stock exchange under section 461.
(3) If the information contained in an application that is
filed under subsection (1) is or becomes inaccurate or incomplete
in any material respect, the registrant shall promptly file a
correcting amendment.
(4) A registration is effective until 12 midnight on December
31 of the year for which the application for registration is filed.
Sec. 457. (1) A person shall pay a fee of $100.00 when
initially filing an application for registration as a local stock
exchange and a fee of $100.00 when filing a renewal of registration
as a local stock exchange.
(2) If an initial or renewal registration application is
denied or withdrawn, the administrator shall retain all of the
filing fee for that application.
Sec. 459. (1) A local stock exchange that is registered or is
required to register under this article must make a written or
electronic record of each transaction conducted between
participants through the exchange, and maintain that record for at
least 7 years after the date of the transaction.
(2) In addition to the records described in subsection (1), a
local stock exchange that is registered or is required to register
under this article shall make and maintain the accounts,
correspondence, memoranda, papers, books, and other records
required by rule or order of the administrator and shall maintain
those records in a form of data storage established by the
administrator by rule or order.
(3) The records of a local stock exchange that is registered
or is required to register under this article are subject to
reasonable periodic, special, or other audits or inspections by a
representative of the administrator, in or outside of this state,
as the administrator considers necessary or appropriate in the
public interest and for the protection of investors. An audit or
inspection may be made at any time and without prior notice. The
administrator may copy and remove for audit or inspection copies of
all records the administrator reasonably considers necessary or
appropriate to conduct the audit or inspection. The administrator
may assess a reasonable charge for conducting an audit or
inspection under this subsection.
Sec. 461. (1) When the administrator receives an application
for registration as a local stock exchange, the administrator shall
publish notice of the filing and provide interested persons an
opportunity to submit written data, views, and arguments concerning
the application. Within 60 days after the date of publication of
the notice, or within any longer period to which the administrator
and applicant agree, the administrator shall do 1 of the following:
(a) If the administrator finds that the requirements of this
article and rules promulgated under this article are satisfied,
issue an order granting registration.
(b) If subdivision (a) is not met, issue an order denying
registration, or granting a conditional or limited registration.
(2) In considering an application for registration for
purposes of subsection (1), the administrator shall consider all of
the following:
(a) Whether the exchange is so organized and has the capacity
to be able to carry out the purposes of this article and to comply
with and to enforce compliance by other persons with the provisions
of this article, the rules and orders of the administrator under
this article, and the rules of the exchange.
(b) Whether the rules of the exchange provide for the
equitable allocation of reasonable dues, fees, and other charges
among its participants, issuers, and other persons using its
facilities.
(c) Whether the rules of the exchange are designed to prevent
fraudulent and manipulative acts and practices; to promote just and
equitable principles of trade; to foster cooperation and
coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities; to remove impediments to and perfect
the mechanism of a free and open market and an intrastate market
system; and, in general, to protect investors and the public
interest and are not designed to permit unfair discrimination
between customers, issuers, brokers, or dealers or to regulate by
virtue of any authority conferred by this article any matters that
are not related to the purposes of this article or the
administration of the exchange.
(d) Whether the rules of the exchange provide for appropriate
discipline of participants and persons associated with its
participants for a violation of the provisions of this article, the
rules and orders of the administrator under this article, and the
rules of the exchange, by expulsion, suspension, limitation of
activities, functions, and operations, fine, censure, being
suspended or barred from being associated with a participant, or
any other appropriate sanction.
(e) Whether the rules of the exchange provide a fair procedure
for the disciplining of participants and persons associated with
participants, the denial of membership to any person seeking
participation in the exchange, the barring of any person from
becoming associated with a participant in the exchange, and the
prohibition or limitation by the exchange of any person with
respect to access to services offered by the exchange or a
participant in the exchange.
(f) Whether the rules of the exchange impose any burden on
competition that is not necessary or appropriate in furtherance of
the purposes of this article.
(3) If the administrator finds that the order is in the public
interest and subsection (4) authorizes the action, the
administrator may issue an order to revoke, suspend, condition, or
limit the registration of a registrant or censure, impose a bar, or
impose a civil fine in an amount that does not exceed $500.00 for a
single violation of this act or rules promulgated under this act,
or $1,000.00 for multiple violations, on a registrant or other
person.
(4) The administrator may impose a sanction described in
subsection (3) if any of the following apply to the local stock
exchange or other person that is the subject of the administrator's
order:
(a) The person filed an application for registration in this
state under this act within the previous 5 years, that, as of the
effective date of registration or as of any date after filing in
the case of an order denying effectiveness, was incomplete in any
material respect or contained a statement that, in light of the
circumstances under which it was made, was false or misleading with
respect to a material fact.
(b) The person willfully violated or willfully failed to
comply with this act, or a rule or order issued by the
administrator under this act, within the previous 10 years.
(c) The person was convicted of any felony or within the
previous 10 years was convicted of a misdemeanor involving a
security, a commodity futures or option contract, or an aspect of a
business involving securities, commodities, investments,
franchises, insurance, banking, or finance.
(d) The person is enjoined or restrained by a court of
competent jurisdiction in an action instituted by the administrator
under this act, a state, the securities and exchange commission, or
the United States from engaging in or continuing an act, practice,
or course of business involving an aspect of a business involving
securities, commodities, investments, franchises, insurance,
banking, or finance.
(e) The person is the subject of an order, issued after notice
and opportunity for hearing by any of the following:
(i) The securities or other financial services regulator of a
state, or the securities and exchange commission or other federal
agency denying, revoking, barring, or suspending registration as a
broker-dealer, agent, investment adviser, federal covered
investment adviser, or investment adviser representative.
(ii) The securities regulator of a state or the securities and
exchange commission against a broker-dealer, agent, investment
adviser, investment adviser representative, or federal covered
investment adviser.
(iii) The securities and exchange commission or a self-
regulatory organization suspending or expelling the registrant from
membership in a self-regulatory organization.
(iv) A court adjudicating a United States postal service fraud.
(v) The insurance regulator of a state denying, suspending, or
revoking the license or registration of an insurance agent.
(vi) A depository institution or financial services regulator
suspending or barring the person from the depository institution or
other financial services business.
(f) The person is the subject of an adjudication or
determination, after notice and opportunity for hearing, by the
securities and exchange commission, the commodity futures trading
commission, the federal trade commission, a federal depository
institution regulator, or a depository institution, insurance, or
other financial services regulator of a state that the person
willfully violated the securities act of 1933, the securities
exchange act of 1934, the investment advisers act of 1940, the
investment company act of 1940, or the commodity exchange act, the
securities or commodities law of a state, or a federal or state law
under which a business involving investments, franchises,
insurance, banking, or finance is regulated.
(g) The person is insolvent, either because the person's
liabilities exceed the person's assets or because the person cannot
meet the person's obligations as they mature. The administrator
shall not enter an order against an applicant or registrant under
this subdivision without a finding of insolvency as to the
applicant or registrant.
(h) The person refuses to allow or otherwise impedes the
administrator from conducting an audit or inspection under section
459(3) or refuses access to a registrant's office to conduct an
audit or inspection under section 459(3).
(i) The person has failed to reasonably supervise an employee
or other individual if he or she was subject to the person's
supervision and committed a violation of this act, or a rule or
order of the administrator under this act, within the previous 5
years.
(j) The person has not paid a proper filing fee within 30 days
after having been notified by the administrator of a deficiency.
The administrator shall vacate an order under this subdivision if
the deficiency is corrected.
(k) After notice and opportunity for a hearing, 1 or more of
the following have occurred within the previous 10 years:
(i) A court of competent jurisdiction has found the person to
have willfully violated the laws of a foreign jurisdiction under
which the business of securities, commodities, investment,
franchises, insurance, banking, or finance is regulated.
(ii) The person was found to have been the subject of an order
of a securities regulator of a foreign jurisdiction denying,
revoking, or suspending the right to engage in the business of
securities as a broker-dealer, agent, investment adviser,
investment adviser representative, or similar person.
(iii) The person was found to have been suspended or expelled
from membership by or participation in a securities exchange or
securities association operating under the securities laws of a
foreign jurisdiction.
(l) The person is the subject of a cease and desist order
issued by the securities and exchange commission or issued under
the securities, commodities, investment, franchise, banking,
finance, or insurance laws of a state.
(m) The person has engaged in dishonest or unethical practices
in the securities, commodities, investment, franchise, banking,
finance, or insurance business within the previous 10 years.
(n) The person is not qualified on the basis of factors such
as training, experience, and knowledge of the securities business,
as indicated by evidence presented at a hearing conducted for the
purpose of reviewing the applicant's qualifications for
registration.
(5) The administrator may suspend or deny an application
summarily, may restrict, condition, limit, or suspend a
registration, or censure, bar, or may impose a civil fine on a
registrant, pending final determination of an administrative
proceeding. When an order under this subsection is issued, the
administrator shall promptly notify each person that is subject to
the order that the order has been issued, the reasons for the
action, and that, within 15 days after the receipt of a request in
a record from the person, the matter will be scheduled for a
hearing. If a hearing is not requested by a person that is subject
to the order or is not ordered by the administrator within 30 days
after the date of service of the order, the order is final. If a
hearing is requested or ordered, the administrator, after notice of
and opportunity for hearing to each person subject to the order,
may modify or vacate the order or extend the order until final
determination.
(6) Except under subsection (5), the administrator shall not
issue an order under this section unless the administrator has met
all of the following:
(a) Given appropriate notice to the applicant or registrant.
(b) Provided an opportunity for hearing to the applicant or
registrant.
(c) Made findings of fact and conclusions of law on the record
pursuant to the administrative procedures act of 1969, 1969 PA 306,
MCL 24.201 to 24.328.
(7) The administrator by order may discipline a person that
controls, directly or indirectly, a person that is not in
compliance with this section to the same extent as the noncomplying
person, unless the controlling person did not know, and in the
exercise of reasonable care could not have known, of the existence
of conduct that is a basis for discipline under this section.
(8) The administrator shall not institute a proceeding under
subsection (3) solely based on material facts actually known by the
administrator unless an investigation or the proceeding is
instituted within 1 year after the administrator first became aware
of the material facts.
Sec. 463. (1) A local stock exchange may not list a business
on its exchange if the business has already listed itself on a
portal or exchange that facilitates a secondary market for
intrastate securities, rather than original purchasers of the
business's intrastate securities listing particular securities of
their own accord. The business may not be or request to be listed
on 2 or more of those portals or exchanges at any given time.
(2) A local stock exchange shall only list a business if that
business is a resident of this state and doing business in this
state at the time the business conducts any offers, sales, or
reselling of its intrastate securities. For purposes of this
subsection, a business is considered to be doing business in this
state if all of the following are met:
(a) If the business had gross revenues of more than $5,000.00
from the sale of products or services or other conduct of its
business for its most recent 12-month fiscal period, it derived at
least 80% of its gross revenues, and those of its subsidiaries on a
consolidated basis, from the operation of a business or of real
property located in or from the rendering of services in this state
during 1 of the following time periods:
(i) In its most recent fiscal year, if the first offer of any
part of the issue is made during the first 6 months of the issuer's
current fiscal year.
(ii) In the first 6 months of its current fiscal year, or
during the 12-month fiscal period ending with that 6-month period,
if the first offer of any part of the business's intrastate
offering is made during the last 6 months of the business's current
fiscal year.
(b) At the end of its most recent semiannual fiscal period
before the first offer of any part of the issue, the business had
at least 80% of its assets and those of its subsidiaries on a
consolidated basis located in this state.
(c) The business intends to use and uses at least 80% of the
net proceeds to the business from the sale or resale of intrastate
securities in connection with the operation of a business or of
real property in, the purchase of real property located in, or the
rendering of services in this state.
(d) The principal office of the business is located within
this state.
Sec. 465. A local stock exchange shall not do any of the
following:
(a) Sell or otherwise distribute to any third party personal
identifying information of an individual without his or her written
consent.
(b) In confirming whether an individual is a resident of this
state or meets any other requirement of relevant state or federal
law, require an individual to provide any personal information
except for 1 or more of the following:
(i) The address of his or her primary residence.
(ii) The number of a valid operator's license, chauffeur's
license, or official personal identification card issued by this
state.
(iii) A current Michigan voter registration.
(c) Charge a fee for a securities transaction conducted
through the exchange that exceeds 5% of the value of the
transaction, as determined by the value passed from 1 exchange
participant to another in exchange for that security.
Sec. 467. (1) An individual's participation in a local stock
exchange in this state is considered a representation that he or
she is a resident of this state. If it is subsequently shown that
an individual was not a resident of this state at the time of his
or her participation in a local stock exchange, any transaction
conducted by that individual while he or she was not a resident is
void.
(2) A person that is not a resident of this state shall not
secondarily purchase an intrastate security within 9 months of the
completion of the offering through which the security was sold
originally. For purposes of this section, each of the following is
prima facie evidence that an individual is a resident of this
state:
(a) A valid operator's license, chauffeur's license, or
official personal identification card issued by this state.
(b) A current Michigan voter registration.
(c) A signed affidavit as described in section 7cc(2) of the
general property tax act, 1893 PA 206, MCL 211.7cc, that indicates
that the individual owns and occupies property in this state as his
or her principal residence.
Sec. 469. The department may promulgate any rules that the
administrator considers necessary to administer this article if
those rules are consistent with the provisions of this act.
Sec. 501. It is unlawful for a person, in connection with the
offer, sale, or purchase of a security or the organization or
operation of a local stock exchange under article 4A, 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 necessary in order to make the statements
made, in the light of the circumstances under which they were made,
not misleading.
(c) Engage in an act, practice, or course of business that
operates or would operate as a fraud or deceit on another person.
