REPORT TITLE:
Uniform Securities Act


DESCRIPTION:
Clarifies the Commissioner of Securities's authority to suspend
an application or registration, allow registration of a successor
entity, pursue an action against an applicant or registrant,
impose sanctions for failure to supervise, and exempt Canadian
dealers servicing vacationing Canadian citizens.  (SD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        2481
HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 1
TWENTIETH LEGISLATURE, 2000                                S.D. 1
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO THE UNIFORM SECURITIES ACT.



BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1.  Chapter 485, Hawaii Revised Statutes, is amended
 
 2 by adding a new section to be appropriately designated and to
 
 3 read as follows:
 
 4      "485-    Withdrawal.  (a)  An application for registration
 
 5 as a dealer, investment adviser, salesperson, or investment
 
 6 adviser representative, may be withdrawn without prejudice by the
 
 7 applicant upon notice to the commissioner in such form as the
 
 8 commissioner may prescribe before the registration becomes
 
 9 effective, unless a proceeding under section 485-15 is pending.
 
10      (b)  Withdrawal from registration as a dealer, investment
 
11 adviser, salesperson, or investment adviser representative shall
 
12 be effective ninety days after receipt by the commissioner of an
 
13 application to withdraw, or at such earlier time as the
 
14 commissioner may allow, unless:
 
15      (1)  A proceeding under section 485-15 against the
 
16           registered person is pending when the application to
 
17           withdraw is received or is instituted within ninety
 
18           days thereafter; or
 
19      (2)  Additional information regarding the application to
 

 
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 1           withdraw is requested by the commissioner within ninety
 
 2           days after the application is filed.
 
 3      (c)  If a proceeding is pending or instituted under section
 
 4 485-15 or if additional information is requested, withdrawal
 
 5 shall be effective at the time and upon the conditions imposed by
 
 6 order of the commissioner.  If no proceeding is pending or
 
 7 instituted under section 485-15 or if no additional information
 
 8 is requested and withdrawal becomes effective, the commissioner
 
 9 may institute a proceeding under section 485-15 within two years
 
10 after the withdrawal became effective and enter an order as of
 
11 the last date on which registration was effective.
 
12      (d)  Unless another date is specified by the federal covered
 
13 adviser, withdrawal of a notice filing by a federal covered
 
14 adviser becomes effective upon receipt by the commissioner of
 
15 notice from the adviser of the withdrawal."
 
16      SECTION 2.  Section 485-1, Hawaii Revised Statutes, is
 
17 amended by amending the definition of "dealer" to read as
 
18 follows:
 
19     "(3)  "Dealer" means any person engaged in the business of
 
20           effecting transactions in securities for the account of
 
21           others or for the person's own account.  "Dealer" does
 
22           not include:
 
23           (A)  [a] A salesperson[,];
 

 
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 1           (B)  [an] An issuer[,];
 
 2           (C)  [a] A person who has no place of business in this
 
 3                State if:
 
 4                (i)  [the] The person effects transactions in this
 
 5                     State exclusively with or through the issuers
 
 6                     of the securities involved in the
 
 7                     transactions; other dealers; or banks,
 
 8                     savings institutions, trust companies,
 
 9                     insurance companies, investment companies as
 
10                     defined in the Investment Company Act of
 
11                     1940, pension or profit-sharing trusts, or
 
12                     other financial institutions or institutional
 
13                     buyers, whether acting for themselves or as
 
14                     trustees[,]; or
 
15               (ii)  [during] During any period of twelve
 
16                     consecutive months the person does not direct
 
17                     more than fifteen offers to sell or to buy
 
18                     into this State in any manner to persons
 
19                     other than those specified in clause (i),
 
20                     whether or not the offeror or any of the
 
21                     offerees is then present in this State[,];
 
22                     [or]
 
23           (D)  [any] Any person licensed as a real estate broker
 

 
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 1                or real estate salesperson under the laws of the
 
 2                State while effecting transactions in a security
 
 3                exempted by section 485-6(14)[.]; or
 
 4           (E)  A person who is a resident of Canada, has no
 
 5                office or other physical presence in this State,
 
 6                and:
 
 7                (i)  Only effects or attempts to effect
 
 8                     transactions in securities with or through
 
 9                     the issuers of securities involved in the
 
10                     transactions, broker dealers, banks, savings
 
11                     institutions, trust companies, insurance
 
12                     companies, investment companies (as defined
 
13                     in the Investment Company Act of 1940),
 
14                     pension or profit-sharing trusts, or other
 
15                     financial institutions or institutional
 
16                     buyers, whether acting for themselves or as
 
17                     trustees; with or for a person from Canada
 
18                     who is present temporarily in this State and
 
19                     with whom a bona fide business relationship
 
20                     existed before the person entered this State;
 
21                     or with or for a person from Canada who is
 
22                     present in this State, whose transactions are
 
23                     in a self-directed tax advantaged retirement
 

 
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 1                     plan in Canada of which the person is the
 
 2                     holder or contributor;
 
 3               (ii)  Files a notice in the form of the person's
 
 4                     current Canadian securities registration and
 
 5                     a consent to service of process;
 
 6              (iii)  Is a member of a duly authorized self-
 
 7                     regulatory organization or stock exchange in
 
 8                     Canada;
 
 9               (iv)  Maintains the provincial or territorial
 
10                     registration and membership in a self-
 
11                     regulatory organization or stock exchange of
 
12                     the person in good standing;
 
13                (v)  Discloses to the person's clients in this
 
14                     State that the person is not subject to the
 
15                     full regulatory requirements of this chapter;
 
16                     and
 
17               (vi)  Does not violate this chapter."
 
18      SECTION 3.  Section 485-2, Hawaii Revised Statutes, is
 
19 amended to read as follows:
 
20      "485-2  Commissioner of securities.  (a)  The
 
21 administration of this chapter shall be vested in the
 
22 commissioner of securities.  The director of commerce and
 
23 consumer affairs shall, with the approval of the governor,
 

 
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 1 appoint the commissioner of securities who shall not be subject
 
 2 to chapters 76 and 77.  The securities commissioner shall hold
 
 3 the commissioner's office at the pleasure of the director of
 
 4 commerce and consumer affairs and shall be responsible for the
 
 5 performance of the duties imposed under this chapter.
 
 6      (b)  The commissioner of securities may adopt, amend, and
 
 7 repeal, pursuant to chapter 91, such rules as may be necessary to
 
 8 carry out the purposes of this chapter.
 
 9      (c)  Notwithstanding subsection (b), the commissioner of
 
10 securities may adopt, amend, and repeal forms and orders
 
11 necessary to implement this chapter without regard to chapter 91.
 
12 No form or order shall be adopted, amended, or repealed without
 
13 regard to chapter 91, unless the commissioner of securities finds
 
14 that the action is in the public interest, necessary or
 
15 appropriate for the protection of investors, and consistent with
 
16 the purposes of this chapter."
 
17      SECTION 4.  Section 485-6, Hawaii Revised Statutes, is
 
18 amended to read as follows:
 
19      "485-6 Exempt transactions.  The following transactions
 
20 [are exempted] shall be exempt from sections 485-4.5, 485-8, and
 
21 485-25(a)(7):
 
22      (1)  Any isolated nonissuer transaction, whether effected
 
23           through a dealer or not;
 

 
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 1      (2)  Any nonissuer distribution of an outstanding security
 
 2           if the manual of Hawaiian securities or any other
 
 3           recognized securities manual contains the names of the
 
 4           issuer's officers and directors, a balance sheet of the
 
 5           issuer as of a date within eighteen months, and a
 
 6           profit and loss statement for either the fiscal year
 
 7           preceding that date or the most recent year of
 
 8           operations, or the security has a fixed maturity or a
 
 9           fixed interest or dividend provision and there has been
 
10           no default during the current fiscal year or within the
 
11           three preceding fiscal years (or during the existence
 
12           of the issuer and any predecessors if less than three
 
13           years) in the payment of principal, interest, or
 
14           dividends on the security;
 
15      (3)  Any nonissuer transaction effected by or through a
 
16           registered dealer pursuant to an unsolicited order or
 
17           offer to buy;
 
18      (4)  Any transaction between the issuer or other person on
 
19           whose behalf the offering is made and an underwriter,
 
20           or among underwriters;
 
21      (5)  Any transaction in a bond or other evidence of
 
22           indebtedness secured by a real or chattel mortgage or
 
23           deed of trust, or by an agreement for the sale of real
 

 
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 1           estate or chattels, if the entire mortgage, deed of
 
 2           trust, or agreement, together with all the bonds or
 
 3           other evidences of indebtedness secured thereby, is
 
 4           offered and sold as a unit;
 
 5      (6)  Any transaction by a personal representative, sheriff,
 
 6           marshal, receiver, trustee in bankruptcy, guardian, or
 
 7           conservator;
 
 8      (7)  Any transaction executed by a bona fide pledgee without
 
 9           any purpose of evading this chapter;
 
10      (8)  Any offer or sale to a bank, savings institution, trust
 
11           company, insurance company, investment company as
 
12           defined in the Investment Company Act of 1940, pension
 
13           or profit-sharing trust, or other financial institution
 
14           or institutional buyer, or to a dealer, whether the
 
15           purchaser is acting for itself or in some fiduciary
 
16           capacity;
 
17      (9)  Any transaction pursuant to an offer directed by the
 
18           offerer to not more than twenty-five persons (other
 
19           than those designated in paragraph (8)) in the State
 
20           during any period of twelve consecutive months, whether
 
21           or not the offerer or any of the offerees is then
 
22           present in the State, if all buyers represent that they
 
23           are purchasing for investment (rather than with a
 

 
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 1           present view to resale) and the seller reasonably
 
 2           accepts their representations as true, and no
 
 3           commission or other remuneration is paid or given
 
 4           directly or indirectly for soliciting any prospective
 
 5           buyer;
 
 6     (10)  Any offer or sale of a preorganization certificate or
 
 7           subscription for any security to be issued by any
 
 8           person if no commission or other remuneration is paid
 
 9           or given directly or indirectly for soliciting any
 
10           prospective subscriber, and the number of subscribers
 
11           does not exceed twenty-five;
 
12     (11)  Any transaction pursuant to an offer to existing
 
13           security holders of the issuer, including persons who
 
14           at the time of the transaction are holders of
 
15           convertible securities, nontransferable warrants, or
 
16           transferable warrants exercisable within ninety days of
 
17           their issuance, if no commission or other remuneration
 
18           (other than a standby commission) is paid or given
 
19           directly or indirectly for soliciting any security
 
20           holder in the State;
 
21     (12)  Any offer (but not a sale) of a security for which
 
22           registration statements have been filed under both this
 
23           chapter and the Securities Act of 1933, if no stop
 

 
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 1           order or refusal order is in effect and no public
 
 2           proceeding or examination looking toward the order is
 
 3           pending under either this chapter or the Act;
 
 4     (13)  Any offer or sale by or through a real estate broker or
 
 5           real estate salesperson licensed under the laws of the
 
 6           State, of a security issued on or after July 1, 1961,
 
 7           by a corporation organized under the laws of the State,
 
 8           the holder of which is entitled solely by reason of the
 
 9           holder's ownership thereof, to occupy for dwelling
 
10           purposes, or to a lease which entitles the holder to
 
11           occupy for dwelling purposes a house, or an apartment
 
12           in a building, owned or leased by the corporation,
 
13           subject, however, to section 485-7;
 
14     (14)  Any offer or sale by or through a real estate broker or
 
15           real estate salesperson licensed under the laws of the
 
16           State of an apartment in a condominium project, and a
 
17           rental management contract relating to the apartment,
 
18           including an interest in a general or limited
 
19           partnership formed for the purpose of managing the
 
20           rental of apartments if the rental management contract
 
21           or the interest in the general or limited partnership
 
22           is offered at the same time as the apartment is
 
23           offered.  The words "apartment", "condominium", and
 

 
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 1           "project" are defined as they are defined in section
 
 2           514A-3;
 
 3     (15)  Any transactions not involving a public offering, and
 
 4           in addition, any categories of transactions effected in
 
 5           accordance with any rules the commissioner may [issue]
 
 6           adopt under chapter 91 pursuant to this paragraph with
 
 7           a view to uniformity with federal law; [and]
 
 8     (16)  (A)  Any transactions involving the offer or sale of a
 
 9                security by an issuer to an accredited investor
 
10                that meet the following requirements:
 
11                (i)  The issuer reasonably believes that the sale
 
12                     is to persons who are accredited investors;
 
13               (ii)  The issuer is not in the development stage,
 
14                     without specific business plan or purpose;
 
15              (iii)  The issuer has not indicated that the
 
16                     issuer's business plan is to engage in a
 
17                     merger or acquisition with an unidentified
 
18                     company or companies, or other entity or
 
19                     person; and
 
20               (iv)  The issuer reasonably believes that all
 
21                     purchasers are purchasing for investment
 
22                     purposes and not with the view to, or for
 
23                     sales in connection with, a distribution of
 

 
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 1                     the security.  Any resale of a security sold
 
 2                     in reliance [of] on this exemption within
 
 3                     twelve months of sale shall be presumed to be
 
 4                     made with a view to distribute and not to
 
 5                     invest, except a resale pursuant to a
 
 6                     registration statement effective under
 
 7                     section 485-8, or to an accredited investor
 
 8                     pursuant to an exemption available under
 
 9                     chapter 485;
 
10           (B)  The exemption under this paragraph shall not apply
 
11                to an issuer if the issuer; any affiliated issuer;
 
12                any beneficial owner of ten per cent or more of
 
13                any class of the issuer's equity securities; any
 
14                issuer's predecessor, director, officer, general
 
15                partner, or promoter presently connected in any
 
16                capacity with the issuer; and any underwriter or
 
17                partner, director, or officer of the underwriter
 
18                of the securities to be offered:
 
19                (i)  Within the last five years has filed a
 
20                     registration statement that is the subject of
 
21                     a currently effective registration stop order
 
22                     entered by any state securities administrator
 
23                     or the United States Securities and Exchange
 

 
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 1                     Commission;
 
 2               (ii)  Within the last five years has been convicted
 
 3                     of any criminal offense in connection with
 
 4                     the offer, purchase, or sale of any security,
 
 5                     or involving fraud or deceit;
 
 6              (iii)  Is currently subject to any state or federal
 
 7                     administrative enforcement order or judgment
 
 8                     entered within the last five years, finding
 
 9                     fraud or deceit in connection with the
 
10                     purchase or sale of any security; or
 
11               (iv)  Is currently subject to any order, judgment,
 
12                     or decree of any court of competent
 
13                     jurisdiction, entered within the last five
 
14                     years, temporarily, preliminarily, or
 
15                     permanently restraining or enjoining such
 
16                     party from engaging in or continuing to
 
17                     engage in any conduct or practice involving
 
18                     fraud or deceit in connection with the
 
19                     purchase or sale of any security;
 
20           (C)  Subparagraph (B) shall not apply if:
 
21                (i)  The party subject to the disqualification is
 
22                     licensed or registered to conduct securities-
 
23                     related business in the state in which the
 

 
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 1                     order, judgment, or decree creating the
 
 2                     disqualification was entered against such
 
 3                     party;
 
 4               (ii)  Before the first offer under this exemption,
 
 5                     the commissioner, or the court or regulatory
 
 6                     authority that entered the order, judgment,
 
 7                     or decree waives the disqualifications; or
 
 8              (iii)  The issuer establishes that the issuer did
 
 9                     not know and in the exercise of reasonable
 
10                     care, based on a factual inquiry, could not
 
11                     have known that a disqualification existed
 
12                     under this paragraph;
 
13           (D)  An issuer claiming the exemption under this
 
14                section, within fifteen days after the first sale
 
15                in this State, shall file with the commissioner a
 
16                notice of transaction, a consent to service of
 
17                process, a copy of the general announcement as
 
18                required by section [[]485-24.6[]], and a $200
 
19                filing fee; and
 
20           (E)  For the purposes of this paragraph, "accredited
 
21                investor" shall have the same meaning as provided
 
22                in 17 Code of Federal Regulations section
 
23                230.501(a)[.]; and
 

 
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 1     (17)  Any offer or sale of a security effected by a resident
 
 2           of Canada who is excluded from the definition of
 
 3           "dealer" under section 485-1(3)(E)."
 
 4      SECTION 5.  Section 485-14, Hawaii Revised Statutes, is
 
 5 amended to read as follows:
 
 6      "485-14  Registration of dealers, investment advisers,
 
 7 salespersons, and investment adviser representatives.(a)  It is
 
 8 unlawful for any person to transact business in this State as a
 
 9 dealer, investment adviser, salesperson, or investment adviser
 
10 representative unless registered under this chapter.  However,
 
11 nothing in this chapter shall prevent the commissioner from
 
12 participating, in whole or in part, in the Central Registration
 
13 Depository system, in cooperation with the National Association
 
14 of Securities Dealers, Inc., other states, and the United States,
 
15 to the extent participation is deemed to be in the public
 
16 interest of this State.
 
17      (b)  Eligibility for registration as a dealer.  To be
 
18 eligible for registration as a dealer, an applicant shall have
 
19 had (or if the applicant is a partnership or corporation have at
 
20 least one partner, officer, or employee who has) at least one
 
21 year of experience as a full-time security salesperson or
 
22 experience as a security salesperson on a part-time basis found
 
23 by the commissioner of securities to be substantially equivalent
 

 
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 1 thereto[,]; provided that [the foregoing] this experience
 
 2 requirement shall not apply to issuers of securities applying for
 
 3 registration as dealers for the sole purpose of issuing and
 
 4 selling securities issued by them.
 
 5      (c)  Application for registration as a dealer.  An
 
 6 application for registration as a dealer [in writing] shall be
 
 7 filed in the office of the commissioner in such form as the
 
 8 commissioner may prescribe, duly verified by oath, and shall
 
 9 state the principal office of the applicant wherever situated,
 
10 and the location of the principal office and branch offices in
 
11 the State, if any, the name and style of doing business, the
 
12 names, residence, and business of principals, copartners,
 
13 officers, and directors, specifying as to each person's capacity
 
14 and title, the general plan and character of business, the length
 
15 of time the dealer has been engaged in business and information
 
16 as to the time, place, and character of experience as a
 
17 securities salesperson.  The commissioner may also require such
 
18 additional information as to the applicant's previous history,
 
19 record, and association including the following:
 
20      (1)  Any injunction or administrative order or conviction of
 
21           a misdemeanor involving a security or any aspect of the
 
22           securities business, and any conviction of a felony;
 
23      (2)  The applicant's financial condition and history;
 

 
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 1      (3)  Whether the dealer, or any person employed by or
 
 2           associated in business with the dealer, is subject to
 
 3           any disqualification which would be a basis for denial,
 
 4           suspension, or revocation of registration of the dealer
 
 5           under section 485-15; and
 
 6      (4)  Any other information [as] that the commissioner deems
 
 7           necessary to establish the qualifications of the
 
 8           applicant.
 
 9      There shall be filed with such application an irrevocable
 
10 written consent to the service of process upon the commissioner
 
11 in actions against the dealer in manner and form provided in
 
12 section 485-12.
 
13      (d)  Eligibility for registration as an investment adviser.
 
14 To be eligible for registration under this chapter, an investment
 
15 adviser shall have complied with the mandatory provisions
 
16 [mandatory] of this section, and shall take and pass an oral or
 
17 written examination, or both, prescribed by the commissioner, to
 
18 test the applicant's knowledge of the securities business;
 
19 provided that the commissioner may by rule set forth exemptions
 
20 to the examination requirement.  Every person required to take
 
21 such an examination at or before the time of the examination,
 
22 shall pay to the commissioner a fee of $250.
 
23      (e)  Registration of investment advisers.  An application
 

 
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 1 for registration, duly verified by oath by the applicant, and in
 
 2 such form as the commissioner shall prescribe, shall be filed in
 
 3 the office of the commissioner accompanied by an irrevocable
 
 4 written consent to the service of process upon the commissioner
 
 5 in actions against the investment adviser in manner and form
 
 6 provided in section 485-12; the applicant's photograph; and a
 
 7 form of the disclosure statement described in section 485-
 
 8 25(c)(4).  Information on the registration statement shall
 
 9 include:
 
10      (1)  The name and form of organization under which the
 
11           investment adviser engages or intends to engage in
 
12           business; the name of the state or other sovereign
 
13           power under which the investment adviser is organized;
 
14           the location of the investment adviser's principal
 
15           business office and branch offices, if any; the names
 
16           and addresses of the investment adviser's partners,
 
17           officers, directors, and persons performing similar
 
18           functions or, if the investment adviser is an
 
19           individual, of the individual; and the number of the
 
20           investment adviser's employees;
 
21      (2)  The education, the business affiliations for the past
 
22           five years, and the present business affiliations of
 
23           the investment adviser and of the investment adviser's
 

 
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 1           partners, officers, directors, and persons performing
 
 2           similar functions and of any controlling person
 
 3           thereof;
 
 4      (3)  The nature of the business of the investment adviser,
 
 5           including the manner of giving advice and rendering
 
 6           analyses or reports;
 
 7      (4)  A balance sheet certified by an independent public
 
 8           accountant and other certified financial statements if
 
 9           the investment adviser has custody of or discretionary
 
10           authority over client money, securities, or other
 
11           assets, or an unaudited, verified balance sheet and
 
12           financial statements if the investment adviser has no
 
13           custody of or discretionary authority over client
 
14           money, securities, or other assets.  If the investment
 
15           adviser maintains its principal place of business in a
 
16           state other than this State and the investment adviser
 
17           is registered in that state and in compliance with its
 
18           financial reporting requirements, this requirement
 
19           shall be deemed satisfied by the investment adviser
 
20           filing with the commissioner a copy of those financial
 
21           statements, if any, that are required to be filed by
 
22           the adviser in the state where it maintains its
 
23           principal place of business;
 

 
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 1      (5)  The nature and scope of the authority of the investment
 
 2           adviser with respect to clients' funds and accounts;
 
 3      (6)  The basis or bases upon which the investment adviser is
 
 4           compensated;
 
 5      (7)  Whether the investment adviser, or any person employed
 
 6           by or associated in business with the investment
 
 7           adviser, is subject to any disqualification which would
 
 8           be a basis for denial, suspension, or revocation of
 
 9           registration of the investment adviser under section
 
10           485-15;
 
11      (8)  A statement as to whether the principal business of the
 
12           investment adviser consists or is to consist of acting
 
13           as investment adviser; and
 
14      (9)  Other information as to the applicant's previous
 
15           history, record, and association that the commissioner
 
16           deems necessary including:
 
17           (A)  Disclosure of any injunction or administrative
 
18                order or conviction of a misdemeanor involving a
 
19                security or any aspect of the securities business,
 
20                and any conviction of a felony;
 
21           (B)  The applicant's financial history; and
 
22           (C)  Any additional information that the commissioner
 
23                deems necessary to establish the applicant's
 

 
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 1                qualifications.
 
 2      The commissioner may use a uniform registration form adopted
 
 3 by the North American Securities Administrators Association, the
 
 4 Securities and Exchange Commission, or any national securities
 
 5 exchange or national securities association registered under the
 
 6 Securities Exchange Act of 1934; provided the form encompasses
 
 7 the information required under this section.
 
 8      (f)  Approval, bond.  If the commissioner finds that the
 
 9 applicant for registration as a dealer is eligible for
 
10 registration, then the commissioner shall register the applicant
 
11 as a dealer upon payment of the fee hereinafter provided and,
 
12 except as otherwise provided in this subsection, upon the
 
13 dealer's filing of a bond in the sum of $5,000 running to the
 
14 State conditioned upon the faithful compliance with this chapter
 
15 by the dealer and by all salespersons registered by the dealer
 
16 while acting for the dealer.  The bond shall be executed as a
 
17 surety by a surety company authorized to do business in the
 
18 State; provided that no bond is required of or from any applicant
 
19 if the applicant at the time of making application is a member of
 
20 any recognized stock or bond exchange which has been in existence
 
21 for a period of five years prior to April 29, 1931; provided
 
22 further that no bond is required of a dealer if the aggregate par
 
23 value of the securities to be sold is less than $5,000 or in the
 

 
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 1 case of no par value stock, if the price at which the stock is to
 
 2 be offered to the public is less than $5,000 if the person
 
 3 selling or offering the securities for sale to the public
 
 4 notifies the commissioner in writing of the person's intention to
 
 5 make the sale and after the sale files with the commissioner a
 
 6 statement of the kind and amount of stock sold and the price
 
 7 received therefor, but where the aggregate par value of the
 
 8 securities or the price at which the stock is to be offered to
 
 9 the public is less than $5,000 no more than one sale or offering
 
10 shall be allowed within a period of one year; provided further
 
11 that in lieu of the above bond, any dealer may deposit and keep
 
12 deposited with the commissioner cash in the amount of $5,000 or
 
13 securities to be approved by the commissioner having a market
 
14 value at all times of not less than $5,000 which cash or
 
15 securities shall be held in trust [for the fulfilling of] to
 
16 fulfill the same terms and conditions as in the case of a bond
 
17 required by this section, which cash or securities may be
 
18 withdrawn at any time subject to the deposit in lieu thereof of
 
19 cash or other securities of equal value, or upon the filing of a
 
20 bond as provided in this section, and which cash or securities
 
21 will be so held in trust for a period of two years beyond the
 
22 revocation or termination of the registration of the dealer
 
23 depositing the same.  No bond shall be required under this
 

 
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 1 section or under this chapter of any dealer that is registered
 
 2 under the Securities Exchange Act of 1934.
 
 3      (g)  Investment adviser's approval; bond, insurance
 
 4 required. If the commissioner finds that the applicant for
 
 5 registration as an investment adviser is eligible for
 
 6 registration, the commissioner shall register the investment
 
 7 adviser upon a payment of a fee hereinafter provided, and, except
 
 8 as otherwise provided in this subsection, upon the investment
 
 9 adviser filing a bond in the sum of $50,000 with the State as the
 
10 obligee.  The bond requirement shall be $5,000 if the adviser
 
11 does not have custody of or discretionary authority over client
 
12 money, securities, or other assets.  The bond shall be
 
13 conditioned upon the faithful compliance with this chapter by the
 
14 investment adviser.  The bond shall be executed as a surety by a
 
15 surety company authorized to do business in the State; provided
 
16 that in lieu of the above bond any investment adviser may deposit
 
17 and keep deposited with the commissioner cash in the applicable
 
18 amount of $50,000 or $5,000 or securities to be approved by the
 
19 commissioner having a market value at all times of not less than
 
20 $50,000 or $5,000 which cash or securities shall be held in trust
 
21 [for the fulfilling of] to fulfill the same terms and conditions
 
22 as in the case of a bond required by this section, which cash or
 
23 securities may be withdrawn at any time subject to the deposit in
 

 
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                                                        S.D. 1
                                                        


 1 lieu thereof of cash or other securities of equal value, or upon
 
 2 the filing of a bond as provided in this section, and which cash
 
 3 or securities will be so held in trust for a period of two years
 
 4 beyond the revocation or termination of the registration of the
 
 5 investment adviser depositing the same.  In addition, except as
 
 6 otherwise provided in this subsection, the investment adviser
 
 7 shall file with the commissioner a certificate of insurance which
 
 8 indicates that the investment adviser's business is insured for
 
 9 errors and omissions for at least $100,000 per occurrence with a
 
10 $200,000 aggregate for those with less than two years experience
 
11 and a $500,000 aggregate for those with two or more years of
 
12 experience for the protection of the investment adviser's client,
 
13 or shall meet an alternative requirement which also provides for
 
14 the protection of the client of the investment adviser, as
 
15 determined by rules adopted by the commissioner.  This subsection
 
16 shall not apply to any investment adviser that maintains its
 
17 principal place of business in a state other than this State;
 
18 provided that the investment adviser is registered in the state
 
19 where it maintains its principal place of business and [[]is[]]
 
20 in compliance with that state's net capital and bonding
 
21 requirements, if any.
 
22      (h)  Eligibility for registration as a salesperson.  To be
 
23 eligible for registration under this chapter, a salesperson shall
 

 
Page 25                                                    2481
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                                                        S.D. 1
                                                        


 1 have complied with the mandatory provisions of this section,
 
 2 shall be designated as a salesperson by a registered dealer, and
 
 3 shall take and pass an oral or written examination, or both,
 
 4 prescribed by the commissioner, to test the salesperson's
 
 5 knowledge of the securities business.  Every person required to
 
 6 take such an examination shall, at or before the time the person
 
 7 takes the same, pay a fee as prescribed by the commissioner.
 
 8 However, registration is not required of a salesperson who
 
 9 represents a dealer in effecting transactions in this State
 
10 limited to those transactions described in section 15(h)(2) of
 
11 the Securities Exchange Act of 1934.  No person shall be
 
12 designated as a salesperson by, or shall act as a salesperson
 
13 for, more than one registered dealer.
 
14      (i)  Registration of salespersons.  An information
 
15 statement, containing information [as] that the commissioner
 
16 shall prescribe, shall be filed where prescribed by the
 
17 commissioner, together with an appointment of the applicant as a
 
18 salesperson by a registered dealer.  The commissioner may require
 
19 the following:
 
20      (1)  Disclosure of any injunction or administrative order or
 
21           conviction of a misdemeanor involving a security or any
 
22           aspect of the securities business and any conviction of
 
23           a felony;
 

 
Page 26                                                    2481
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                                                        S.D. 1
                                                        


 1      (2)  The applicant's financial history and condition;
 
 2      (3)  Disclosure as to whether the salesperson or any person
 
 3           associated in business with the salesperson is subject
 
 4           to any disqualification which would be a basis for
 
 5           denial, suspension, or revocation of registration of
 
 6           the salesperson under section 485-15; and
 
 7      (4)  Any additional information [as] that the commissioner
 
 8           deems necessary to establish the applicant's
 
 9           qualifications.
 
10 If the commissioner finds a salesperson designated by any
 
11 registered dealer to be eligible for registration as a
 
12 salesperson, the commissioner shall register the person as a
 
13 salesperson upon the payment of the fee hereinafter provided.
 
14      (j)  Eligibility for registration as an investment adviser
 
15 representative.  To be eligible for registration under this
 
16 chapter, an investment adviser representative shall have complied
 
17 with the mandatory provisions of this section, shall be
 
18 designated as a representative by a federal covered adviser or a
 
19 registered investment adviser, and shall take and pass an oral or
 
20 written examination, or both, prescribed by the commissioner, to
 
21 test the representative's knowledge of the investment advisory
 
22 and securities business; provided that the commissioner may by
 
23 rule set forth exemptions to the examination requirement.  Every
 

 
Page 27                                                    2481
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        


 1 person required to take an examination shall, at or before the
 
 2 time the person takes the same, pay a fee as prescribed by the
 
 3 commissioner.  No person shall be designated as an investment
 
 4 adviser representative by, or shall act as an investment adviser
 
 5 representative for, more than one federal covered adviser or
 
 6 registered investment adviser.
 
 7      (k)  Registration of investment adviser representative.  An
 
 8 information statement, containing information that the
 
 9 commissioner shall prescribe, duly verified by oath by the
 
10 applicant, shall be filed in the office of the commissioner,
 
11 together with an appointment of the applicant as an investment
 
12 adviser representative by a registered investment adviser if the
 
13 representative is seeking registration with an investment
 
14 adviser.  The commissioner may require the following:
 
15      (1)  Disclosure of any injunction or administrative order or
 
16           conviction of a misdemeanor involving a security or any
 
17           aspect of the securities business, and any conviction
 
18           of a felony;
 
19      (2)  The applicant's financial history and condition;
 
20      (3)  Disclosure as to whether the investment adviser
 
21           representative, or any person associated in business
 
22           with the investment adviser representative, is subject
 
23           to any disqualification which would be a basis for
 

 
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                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        


 1           denial, suspension, or revocation of registration of
 
 2           the investment adviser representative under section
 
 3           485-15; and
 
 4      (4)  Any additional information that the commissioner deems
 
 5           necessary to establish the applicant's qualifications.
 
 6 If the commissioner finds an investment adviser representative
 
 7 designated by any federal covered adviser or investment adviser
 
 8 to be eligible for registration as an investment adviser
 
 9 representative, the commissioner shall register the person as an
 
10 investment adviser representative upon the payment of a fee
 
11 hereinafter provided.
 
12      (l)  Recording; duration; renewal; fee.  The [name] names
 
13 and addresses of all persons found eligible for registration as
 
14 dealers, investment advisers, salespersons, or investment adviser
 
15 representatives and all orders with respect thereto shall be
 
16 recorded in a register of dealers, investment advisers,
 
17 salespersons, and investment adviser representatives kept in the
 
18 office of the commissioner [which] and shall be open to public
 
19 inspection.  Except as hereinafter provided, every registration
 
20 for investment advisers and investment adviser representatives
 
21 under this section shall expire on December 31 in each odd-
 
22 numbered year, and every registration for dealers and
 
23 salespersons under this section shall expire on December 31 of
 

 
Page 29                                                    2481
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        


 1 each year.  Applications for renewals shall be made not less than
 
 2 thirty nor more than sixty days before the end of the expiration
 
 3 year or as provided through the Central Registration Depository
 
 4 system.  Any applicant for renewal of a dealer, investment
 
 5 adviser, salesperson, or investment adviser representative
 
 6 registration who does not submit the application within the time
 
 7 prescribed by this section shall pay a penalty of one hundred per
 
 8 cent of the applicable renewal fee.  Any applicant for renewal of
 
 9 a dealer or investment adviser registration who submits the
 
10 application after December 31 of the expiration year shall be
 
11 required to reapply as a new dealer or investment adviser.  The
 
12 registration of any dealer, investment adviser, salesperson, or
 
13 investment adviser representative may be revoked or terminated
 
14 prior to its expiration by written notice filed with the
 
15 commissioner by the registered dealer, registered salesperson,
 
16 registered investment adviser, or registered investment adviser
 
17 representative concerned, and the revocation shall take effect as
 
18 of the date and time of filing of the notice.  Upon revocation or
 
19 termination of the registration of any dealer, investment
 
20 adviser, salesperson, or investment adviser representative, the
 
21 dealer's, investment adviser's, salesperson's, or investment
 
22 adviser representative's certificate of registration shall be
 
23 surrendered to the commissioner for cancellation.  The fee for
 

 
Page 30                                                    2481
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        


 1 registration and for each renewal shall be $200 in the case of
 
 2 dealers and investment advisers and $50 in the case of
 
 3 salespersons and investment adviser representatives.
 
 4      (m)  Changes.  Changes in registration occasioned by changes
 
 5 in the personnel of a partnership or in the principals,
 
 6 copartners, officers, or directors of any [dealer] dealer's or
 
 7 investment adviser's business may be made from time to time by
 
 8 written application setting forth the facts with respect to such
 
 9 change.
 
10      (n)  Announcement of registration application.  The
 
11 commissioner, by rule, may require an applicant for initial
 
12 registration as a dealer, investment adviser, salesperson, or
 
13 investment adviser representative to publish an announcement of
 
14 the application in one or more newspapers of general circulation
 
15 in this State.
 
16      (o)  Notice of intent to offer.  Every registered dealer who
 
17 intends to offer any security of any issue registered or to be
 
18 registered shall notify the commissioner in writing of the
 
19 dealer's intention [so] to do[.] so.  The notice shall contain
 
20 the name of the dealer[,] and shall state the name of the
 
21 security to be offered for sale, and whenever a dealer has
 
22 prepared such notice and has forwarded the same by registered
 
23 mail, postage prepaid, and properly addressed to the
 

 
Page 31                                                    2481
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        


 1 commissioner, such dealer, as to the contents of the notice and
 
 2 the filing thereof, is deemed to have complied with the
 
 3 requirements of this subsection.
 
 4      (p)  Issuers as dealers.  Any issuer of a security required
 
 5 to be registered under this chapter selling such securities
 
 6 (other than in exempt transactions as defined in section 485-6),
 
 7 and any issuer of an exempt security as defined in section 485-
 
 8 4(9) and (10) offering such securities (other than (1) in exempt
 
 9 transactions as defined in section 485-6, or (2) through a dealer
 
10 registered pursuant to this chapter) shall file with the
 
11 commissioner a bond, or deposit securities or cash in an amount,
 
12 based on the total capitalization, to be determined by the
 
13 commissioner in the commissioner's discretion, which amount,
 
14 however, shall not be less than $5,000, nor more than $25,000,
 
15 subject also to the same conditions as herein prescribed in the
 
16 case of dealers, and may appoint salespersons in the manner
 
17 herein prescribed in the case of dealers.
 
18      (q)  Capital requirement for dealers and investment advisers
 
19 who have custody of or discretionary authority over client money,
 
20 securities, or other assets.  Except as otherwise provided in
 
21 this subsection, the commissioner may by rule require a minimum
 
22 capital requirement for registered dealers which shall not be
 
23 less than $5,000 in the case of dealers and prescribe a ratio
 

 
Page 32                                                    2481
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        


 1 between net capital and aggregate indebtedness.  This subsection
 
 2 shall not apply to any dealer that is registered under the
 
 3 Securities Exchange Act of 1934.  The commissioner may by rule
 
 4 require a net worth requirement which shall not be less than
 
 5 $5,000 for investment advisers.  This subsection shall not apply
 
 6 to any investment adviser that maintains its principal place of
 
 7 business in a state other than this State; provided that the
 
 8 investment adviser is registered in the state where it maintains
 
 9 its principal place of business and is in compliance with that
 
10 state's net worth or net capital requirements, if any.
 
11      (r)  A registered broker dealer or investment adviser may
 
12 file an application for registration of a successor, whether or
 
13 not the successor is then in existence, for the unexpired portion
 
14 of the year.  There shall be no filing fee for registration of a
 
15 successor."
 
16      SECTION 6.  Section 485-15, Hawaii Revised Statutes, is
 
17 amended to read as follows:
 
18      "485-15  Denial, revocation, or suspension of dealers',
 
19 investment advisers', salespersons', and investment adviser
 
20 representatives' registration; suspension during investigation,
 
21 etc.  Upon the finding of errors in a registration statement or
 
22 the filing of complaints by consumers or by any government
 
23 agency, the commissioner may conduct an investigation of the
 

 
Page 33                                                    2481
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        


 1 applicant or registrant and [registration under section 485-14
 
 2 may be refused or any registration granted may be revoked by the
 
 3 commissioner of securities] the commissioner may deny an
 
 4 application for registration, revoke or suspend any registration,
 
 5 or limit or impose conditions on the securities activities that a
 
 6 registrant may conduct in this State, if after [a] reasonable
 
 7 notice and a hearing the commissioner determines that the
 
 8 applicant or registrant [so registered]:
 
 9      (1)  Has filed an application for registration which as of
 
10           its effective date, or as of any date after filing in
 
11           the case of an order denying effectiveness, was
 
12           incomplete in any material respect or contained any
 
13           statement which was, in light of the circumstances
 
14           under which it was made, false or misleading with
 
15           respect to any material fact;
 
16      (2)  Has violated or failed to comply with any provision of
 
17           this chapter or any rule or order under this chapter;
 
18      (3)  Has been convicted, within the past ten years, of any
 
19           misdemeanor involving a security or any aspect of the
 
20           securities business, or any felony;
 
21      (4)  Is permanently or temporarily enjoined by any court of
 
22           competent jurisdiction for engaging in or continuing
 
23           any conduct or practice involving any aspect of the
 

 
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                                                        S.D. 1
                                                        


 1           securities business;
 
 2      (5)  Is the subject of an order of the commissioner denying,
 
 3           suspending, or revoking registration as a dealer,
 
 4           investment adviser, salesperson, or investment adviser
 
 5           representative;
 
 6      (6)  Is the subject of an order entered within the past five
 
 7           years by the securities administrator of any other
 
 8           state or by the Securities and Exchange Commission
 
 9           denying or revoking registration as a dealer,
 
10           investment adviser, salesperson, or investment adviser
 
11           representative, or the substantial equivalent of those
 
12           terms as defined in this chapter, or is the subject of
 
13           an order of the Securities and Exchange Commission
 
14           suspending or expelling the applicant or registrant
 
15           from a national securities exchange or national
 
16           securities association registered under the Securities
 
17           Exchange Act of 1934, or is the subject of a United
 
18           States Post Office fraud order; but:
 
19           (A)  The commissioner may not institute a revocation or
 
20                suspension proceeding under this paragraph more
 
21                than one year from the date of the order relied
 
22                on[,]; and
 
23           (B)  The commissioner may not enter an order under this
 

 
Page 35                                                    2481
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        


 1                paragraph on the basis of an order under another
 
 2                law of this State unless that order was based on
 
 3                facts which would currently constitute a ground
 
 4                for an order under this section;
 
 5      (7)  Has engaged or is about to engage in fraudulent,
 
 6           dishonest, or unethical practices in the securities
 
 7           business;
 
 8      (8)  Is insolvent, either in the sense that liabilities
 
 9           exceed assets or in the sense that the dealer,
 
10           investment adviser, salesperson, or investment adviser
 
11           representative cannot meet obligations as they mature;
 
12           but the commissioner may not enter an order against a
 
13           dealer or investment adviser under this paragraph
 
14           without a finding of insolvency as to the dealer or
 
15           investment adviser;
 
16      (9)  Is not qualified on the basis of such factors as
 
17           training, experience, and knowledge of the securities
 
18           business;
 
19     (10)  Has failed reasonably to supervise agents, if a
 
20           dealer[,] or an agent of a dealer with supervisory
 
21           responsibilities, or employees, if an investment
 
22           adviser[;] or an employee of an investment adviser with
 
23           supervisory responsibilities; for the purposes of this
 

 
Page 36                                                    2481
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        


 1           paragraph no person shall be deemed to have failed
 
 2           reasonably to supervise any person if there have been
 
 3           established procedures, and a system for applying such
 
 4           procedures, which would reasonably be expected to
 
 5           prevent and detect, insofar as practicable, any such
 
 6           violations by such other person, and such person has
 
 7           reasonably discharged the duties and obligations
 
 8           incumbent upon the person by reason of such procedures
 
 9           and system without reasonable cause to believe that
 
10           such procedures and system were not being complied
 
11           with; or
 
12     (11)  Has demonstrated unworthiness to transact the business
 
13           of dealer, investment adviser, salesperson, or
 
14           investment adviser representative.
 
15      In cases of charges against a salesperson or investment
 
16 adviser representative notice thereof shall also be given the
 
17 dealer or investment adviser employing such salesperson or
 
18 investment adviser representative.  Pending the hearing, the
 
19 commissioner may order the suspension of the dealer's, investment
 
20 adviser's, salesperson's, or investment adviser representative's
 
21 registration; provided the order states the cause for the
 
22 suspension.
 
23      Until the entry of a final order the suspension of the
 

 
Page 37                                                    2481
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        


 1 dealer's or investment adviser's registration, though binding
 
 2 upon the persons notified thereof, shall be deemed confidential,
 
 3 and shall not be published, unless it appears that the order of
 
 4 suspension has been violated after notice.
 
 5      In the event the commissioner determines to refuse or revoke
 
 6 a registration as [hereinabove] provided[,] in this section, the
 
 7 commissioner shall enter a final order [herein] with the
 
 8 commissioner's findings on the register of dealers, investment
 
 9 advisers, salespersons, and investment adviser representatives;
 
10 and suspension or revocation of the registration of a dealer or
 
11 investment adviser shall also suspend or revoke the registration
 
12 of all the dealer's or investment adviser's salespersons or
 
13 investment adviser representatives.
 
14      It shall be sufficient cause for refusal or cancellation of
 
15 registration in case of a partnership or corporation or any
 
16 unincorporated association, if any member of a partnership or any
 
17 officer or director of the corporation or association has been
 
18 guilty of any act or omission which would be cause for refusing
 
19 or revoking the registration of an individual dealer, investment
 
20 adviser, salesperson, or investment adviser representative."
 
21      SECTION 7.  Statutory material to be repealed is bracketed.
 
22 New statutory material is underscored. 
 
23      SECTION 8.  This Act shall take effect upon its approval.