AB 692

This bill modifies requirements for certain securities transactions to be exempt

from registration with the Division of Securities in the Department of Financial

Institutions and creates a new exemption for certain offers, but not sales, of

securities associated with an existing exemption.

Under current law, a person may not offer or sell any security in this state

unless the security is registered with the division, the security or transaction is

exempt from registration, or the security is a federal covered security. There are two

similar transaction exemptions related to crowdfunding that exempt securities

offerings from registration with the division if specified requirements are met.

Among these requirements, there is a limit on the amount of money that may be

raised through the offering and on the amount of money that may be received from

any single purchaser. Funds received from the offering must be deposited in a

financial institution chartered under the laws of this state. The issuer of the security

must be a business entity organized under the laws of this state and authorized to

do business in this state. The transaction must meet exemption requirements for

intrastate offerings under federal law and Rule 147 adopted by the federal Securities

and Exchange Commission. The issuer must also make certain disclosures to

purchasers, including that the securities have not been registered and are subject to

limitations on resale.

Under one of these crowdfunding exemptions, the offering must be made

exclusively through an Internet site registered with the division. The Internet site

operator must be a business entity organized under the laws of this state and

authorized to do business in this state. The Internet site operator may register with

the division without also being registered as a broker-dealer if it satisfies certain

conditions, including that, with an exception, it is not compensated based on the

amount of securities sold and the fee it charges is a fixed amount for each offering,

a variable amount based on the length of time that the securities are offered on the

Internet site, or a combination of these fixed and variable amounts. If the SEC

adopts rules that authorize funding portals registered with the SEC to receive

commissions without also registering with the SEC as broker-dealers, the division

must promulgate rules, consistent with the SEC rules, authorizing Internet site

operators to receive commissions without also registering with the division as

broker-dealers.

The crowdfunding exemption under which the offering is not required to be

made through an Internet site prohibits general solicitation or general advertising

in connection with the offering unless permitted by the division.

This bill makes the following changes related to these two crowdfunding

exemptions from securities registration:

1. Under the bill, an issuer claiming either of these exemptions must have a

principal place of business in this state, but is not required to be organized under the