HF 1243

1st Unofficial Engrossment - 88th Legislature (2013 - 2014)

Posted on 05/17/2013 08:09 p.m.

1.1A bill for an act 1.2relating to commerce; modifying securities registration and franchise registration 1.3provisions;amending Minnesota Statutes 2012, sections 80A.41; 80A.54; 1.480A.58; 80A.61; 80A.66; 80C.08, by adding a subdivision. 1.5BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 1.6    Section 1. Minnesota Statutes 2012, section 80A.41, is amended to read: 1.780A.41 SECTION 102; DEFINITIONS. 1.8    In this chapter, unless the context otherwise requires: 1.9(1) "Accredited investor" means an accredited investor as the term is defined in Rule 1.10501(a) of Regulation D adopted pursuant to the Securities Act of 1933. 1.11    (2) "Administrator" means the commissioner of commerce. 1.12    (3) "Agent" means an individual, other than a broker-dealer, who represents a 1.13broker-dealer in effecting or attempting to effect purchases or sales of securities or 1.14represents an issuer in effecting or attempting to effect purchases or sales of the issuer's 1.15securities. But a partner, officer, or director of a broker-dealer or issuer, or an individual 1.16having a similar status or performing similar functions is an agent only if the individual 1.17otherwise comes within the term. The term does not include an individual excluded by 1.18rule adopted or order issued under this chapter. 1.19    (4) "Bank" means: 1.20    (A) a banking institution organized under the laws of the United States; 1.21    (B) a member bank of the Federal Reserve System; 1.22    (C) any other banking institution, whether incorporated or not, doing business 1.23under the laws of a state or of the United States, a substantial portion of the business 1.24of which consists of receiving deposits or exercising fiduciary powers similar to those 2.1permitted to be exercised by national banks under the authority of the Comptroller of the 2.2Currency pursuant to Section 1 of Public Law 87-722 (12 U.S.C. Section 92a), and which 2.3is supervised and examined by a state or federal agency having supervision over banks, 2.4and which is not operated for the purpose of evading this chapter; and 2.5    (D) a receiver, conservator, or other liquidating agent of any institution or firm 2.6included in subparagraph (A), (B), or (C). 2.7    (5) "Broker-dealer" means a person engaged in the business of effecting transactions 2.8in securities for the account of others or for the person's own account. The term does 2.9not include: 2.10    (A) an agent; 2.11    (B) an issuer; 2.12    (C) a depository institution; provided such activities are conducted in accordance 2.13with such rules as may be adopted by the administrator; 2.14    (D) an international banking institution; or 2.15    (E) a person excluded by rule adopted or order issued under this chapter. 2.16    (6) "Depository institution" means: 2.17    (A) a bank; or 2.18    (B) a savings institution, trust company, credit union, or similar institution that is 2.19organized or chartered under the laws of a state or of the United States, authorized to receive 2.20deposits, and supervised and examined by an official or agency of a state or the United 2.21States if its deposits or share accounts are insured to the maximum amount authorized by 2.22statute by the Federal Deposit Insurance Corporation, the National Credit Union Share 2.23Insurance Fund, or a successor authorized by federal law. The term does not include: 2.24    (i) an insurance company or other organization primarily engaged in the business 2.25of insurance; 2.26    (ii) a Morris Plan bank; or 2.27    (iii) an industrial loan company that is not an "insured depository institution" as 2.28defined in section 3(c)(2) of the Federal Deposit Insurance Act, United States Code, title 2.2912, section 1813(c)(2), or any successor federal statute. 2.30    (7) "Federal covered investment adviser" means a person registered under the 2.31Investment Advisers Act of 1940. 2.32    (8) "Federal covered security" means a security that is, or upon completion of a 2.33transaction will be, a covered security under Section 18(b) of the Securities Act of 1933 2.34(15 U.S.C. Section 77r(b)) or rules or regulations adopted pursuant to that provision. 2.35    (9) "Filing" means the receipt under this chapter of a record by the administrator or 2.36a designee of the administrator. 3.1    (10) "Fraud," "deceit," and "defraud" are not limited to common law deceit. 3.2    (11) "Guaranteed" means guaranteed as to payment of all principal and all interest. 3.3    (12) "Institutional investor" means any of the following, whether acting for itself or 3.4for others in a fiduciary capacity: 3.5    (A) a depository institution or international banking institution; 3.6    (B) an insurance company; 3.7    (C) a separate account of an insurance company; 3.8    (D) an investment company as defined in the Investment Company Act of 1940; 3.9    (E) a broker-dealer registered under the Securities Exchange Act of 1934; 3.10    (F) an employee pension, profit-sharing, or benefit plan if the plan has total assets 3.11in excess of $10,000,000 or its investment decisions are made by a named fiduciary, as 3.12defined in the Employee Retirement Income Security Act of 1974, that is a broker-dealer 3.13registered under the Securities Exchange Act of 1934, an investment adviser registered 3.14or exempt from registration under the Investment Advisers Act of 1940, an investment 3.15adviser registered under this chapter, a depository institution, or an insurance company; 3.16    (G) a plan established and maintained by a state, a political subdivision of a state, or 3.17an agency or instrumentality of a state or a political subdivision of a state for the benefit 3.18of its employees, if the plan has total assets in excess of $10,000,000 or its investment 3.19decisions are made by a duly designated public official or by a named fiduciary, as 3.20defined in the Employee Retirement Income Security Act of 1974, that is a broker-dealer 3.21registered under the Securities Exchange Act of 1934, an investment adviser registered 3.22or exempt from registration under the Investment Advisers Act of 1940, an investment 3.23adviser registered under this chapter, a depository institution, or an insurance company; 3.24    (H) a trust, if it has total assets in excess of $10,000,000, its trustee is a depository 3.25institution, and its participants are exclusively plans of the types identified in subparagraph 3.26(F) or (G), regardless of the size of their assets, except a trust that includes as participants 3.27self-directed individual retirement accounts or similar self-directed plans; 3.28    (I) an organization described in Section 501(c)(3) of the Internal Revenue Code (26 3.29U.S.C. Section 501(c)(3)), corporation, Massachusetts trust or similar business trust, 3.30limited liability company, or partnership, not formed for the specific purpose of acquiring 3.31the securities offered, with total assets in excess of $10,000,000; 3.32    (J) a small business investment company licensed by the Small Business 3.33Administration under Section 301(c) of the Small Business Investment Act of 1958 (15 3.34U.S.C. Section 681(c)) with total assets in excess of $10,000,000; 4.1    (K) a private business development company as defined in Section 202(a)(22) of 4.2the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-2(a)(22)) with total assets 4.3in excess of $10,000,000; 4.4    (L) a federal covered investment adviser acting for its own account; 4.5    (M) a "qualified institutional buyer" as defined in Rule 144A(a)(1), other than Rule 4.6144A(a)(1)(i)(H), adopted under the Securities Act of 1933 (17 C.F.R. 230.144A); 4.7    (N) a "major U.S. institutional investor" as defined in Rule 15a-6(b)(4)(i) adopted 4.8under the Securities Exchange Act of 1934 (17 C.F.R. 240.15a-6); 4.9    (O) any other person, other than an individual new text begin or a private fund new text end , of institutional 4.10character with total assets in excess of $10,000,000 not organized for the specific purpose 4.11of evading this chapter; or 4.12    (P) any other person specified by rule adopted or order issued under this chapter; 4.13    (13) "Insurance company" means a company organized as an insurance company 4.14whose primary business is writing insurance or reinsuring risks underwritten by insurance 4.15companies and which is subject to supervision by the insurance commissioner or a similar 4.16official or agency of a state. 4.17    (14) "Insured" means insured as to payment of all principal and all interest. 4.18    (15) "International banking institution" means an international financial institution 4.19of which the United States is a member and whose securities are exempt from registration 4.20under the Securities Act of 1933. 4.21    (16) "Investment adviser" means a person that, for compensation, engages in the 4.22business of advising others, either directly or through publications or writings, as to the 4.23value of securities or the advisability of investing in, purchasing, or selling securities or 4.24that, for compensation and as a part of a regular business, issues or promulgates analyses 4.25or reports concerning securities. The term includes a financial planner or other person 4.26that, as an integral component of other financially related services, provides investment 4.27advice to others for compensation as part of a business or that holds itself out as providing 4.28investment advice to others for compensation. The term does not include: 4.29    (A) an investment adviser representative; 4.30    (B) a lawyer, accountant, engineer, or teacher whose performance of investment 4.31advice is solely incidental to the practice of the person's profession; 4.32    (C) a broker-dealer or its agents whose performance of investment advice is solely 4.33incidental to the conduct of business as a broker-dealer and that does not receive special 4.34compensation for the investment advice; 4.35    (D) a publisher of a bona fide newspaper, news magazine, or business or financial 4.36publication of general and regular circulation; 5.1    (E) a federal covered investment adviser; 5.2    (F) a bank or savings institution; 5.3    (G) any other person that is excluded by the Investment Advisers Act of 1940 from 5.4the definition of investment adviser; or 5.5    (H) any other person excluded by rule adopted or order issued under this chapter. 5.6    (17) "Investment adviser representative" means an individual employed by or 5.7associated with an investment adviser or federal covered investment adviser and who 5.8makes any recommendations or otherwise gives investment advice regarding securities, 5.9manages accounts or portfolios of clients, determines which recommendation or advice 5.10regarding securities should be given, provides investment advice or holds herself or 5.11himself out as providing investment advice, receives compensation to solicit, offer, or 5.12negotiate for the sale of or for selling investment advice, or supervises employees who 5.13perform any of the foregoing. The term does not include an individual who: 5.14    (A) performs only clerical or ministerial acts; 5.15    (B) is an agent whose performance of investment advice is solely incidental to 5.16the individual acting as an agent and who does not receive special compensation for 5.17investment advisory services; 5.18    (C) is employed by or associated with a federal covered investment adviser, unless the 5.19individual has a "place of business" in this state as that term is defined by rule adopted under 5.20Section 203A of the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-3a) and is 5.21    (i) an "investment adviser representative" as that term is defined by rule adopted 5.22under Section 203A of the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-3a); or 5.23    (ii) not a "supervised person" as that term is defined in Section 202(a)(25) of the 5.24Investment Advisers Act of 1940 (15 U.S.C. Section 80b-2(a)(25)); or 5.25    (D) is excluded by rule adopted or order issued under this chapter. 5.26    (18) "Issuer" means a person that issues or proposes to issue a security, subject to 5.27the following: 5.28    (A) The issuer of a voting trust certificate, collateral trust certificate, certificate of 5.29deposit for a security, or share in an investment company without a board of directors or 5.30individuals performing similar functions is the person performing the acts and assuming 5.31the duties of depositor or manager pursuant to the trust or other agreement or instrument 5.32under which the security is issued. 5.33    (B) The issuer of an equipment trust certificate or similar security serving the same 5.34purpose is the person by which the property is or will be used or to which the property 5.35or equipment is or will be leased or conditionally sold or that is otherwise contractually 5.36responsible for assuring payment of the certificate. 6.1    (C) The issuer of a fractional undivided interest in an oil, gas, or other mineral lease 6.2or in payments out of production under a lease, right, or royalty is the owner of an interest 6.3in the lease or in payments out of production under a lease, right, or royalty, whether 6.4whole or fractional, that creates fractional interests for the purpose of sale. 6.5    (19) "Nonissuer transaction" or "nonissuer distribution" means a transaction or 6.6distribution not directly or indirectly for the benefit of the issuer. 6.7    (20) "Offer to purchase" includes an attempt or offer to obtain, or solicitation of an 6.8offer to sell, a security or interest in a security for value. The term does not include a 6.9tender offer that is subject to Section 14(d) of the Securities Exchange Act of 1934 (15 6.10U.S.C. Section 78n(d)). 6.11    (21) "Person" means an individual; corporation; business trust; estate; trust; 6.12partnership; limited liability company; association; joint venture; government; 6.13governmental subdivision, agency, or instrumentality; public corporation; or any other 6.14legal or commercial entity. 6.15    (22) "Place of business" of a broker-dealer, an investment adviser, or a federal 6.16covered investment adviser means: 6.17    (A) an office at which the broker-dealer, investment adviser, or federal covered 6.18investment adviser regularly provides brokerage or investment advice or solicits, meets 6.19with, or otherwise communicates with customers or clients; or 6.20    (B) any other location that is held out to the general public as a location at which 6.21the broker-dealer, investment adviser, or federal covered investment adviser provides 6.22brokerage or investment advice or solicits, meets with, or otherwise communicates with 6.23customers or clients. 6.24    (23) "Predecessor Act" means Minnesota Statutes 2002, sections 80A.01 to 80A.31. 6.25    (24) "Price amendment" means the amendment to a registration statement filed under 6.26the Securities Act of 1933 or, if an amendment is not filed, the prospectus or prospectus 6.27supplement filed under the Securities Act of 1933 that includes a statement of the offering 6.28price, underwriting and selling discounts or commissions, amount of proceeds, conversion 6.29rates, call prices, and other matters dependent upon the offering price. 6.30    (25) "Principal place of business" of a broker-dealer or an investment adviser means 6.31the executive office of the broker-dealer or investment adviser from which the officers, 6.32partners, or managers of the broker-dealer or investment adviser direct, control, and 6.33coordinate the activities of the broker-dealer or investment adviser. 6.34    (26) Only for purposes of calculating the number of purchasers under section 6.3580A.46, clauses (1) and (14), "purchaser" does not include: 7.1    (A) any relative, spouse, or relative of the spouse of a purchaser who has the same 7.2principal residence as the purchaser; 7.3    (B) any trust or estate in which a purchaser and any of the persons related to him as 7.4specified in Regulation D, Rule 501(e)(1)(i) or (e)(1)(ii) collectively have more than 50 7.5percent of the beneficial interest (excluding contingent interests); 7.6    (C) any corporation or other organization of which a purchaser and any of the 7.7persons related to the purchaser as specified in Regulation D, Rule 501(e)(1)(i) or 7.8(e)(1)(ii) collectively are beneficial owners of more than 50 percent of the equity securities 7.9(excluding directors' qualifying shares) or equity interests; and 7.10    (D) any accredited investor. 7.11    A corporation, partnership, or other entity must be counted as one purchaser. If, 7.12however, that entity is organized for the specific purpose of acquiring the securities offered 7.13and is not an accredited investor, then each beneficial owner of equity securities or equity 7.14interests in the entity shall count as a separate purchaser for all provisions of Regulation 7.15D, except to the extent provided in Regulation D, Rule 501(e)(1). 7.16    A noncontributory employee benefit plan within the meaning of Title I of the 7.17Employee Retirement Income Security Act of 1974 shall be counted as one purchaser 7.18where the trustee makes all investment decisions for the plan. 7.19    (27) "Record," except in the phrases "of record," "official record," and "public 7.20record," means information that is inscribed on a tangible medium or that is stored in an 7.21electronic or other medium and is retrievable in perceivable form. 7.22    (28) "Sale" includes every contract of sale, contract to sell, or disposition of, a 7.23security or interest in a security for value, and "offer to sell" includes every attempt or 7.24offer to dispose of, or solicitation of an offer to purchase, a security or interest in a 7.25security for value. 7.26    (A) A security given or delivered with, or as a bonus on account of, any purchase of 7.27securities or any other thing is considered to constitute part of the subject of the purchase 7.28and to have been offered and sold for value. 7.29    (B) A gift of assessable stock is considered to involve an offer and sale. 7.30    (C) A sale or offer of a warrant or right to purchase or subscribe to another security 7.31of the same or another issuer and a sale or offer of a security that gives the holder a present 7.32or future right or privilege to convert the security into another security of the same or 7.33another issuer, are each considered to include an offer of the other security. 7.34    (29) "Securities and Exchange Commission" means the United States Securities and 7.35Exchange Commission. 8.1    (30) "Security" means a note; stock; treasury stock; security future; bond; debenture; 8.2evidence of indebtedness; certificate of interest or participation in a profit-sharing 8.3agreement; collateral trust certificate; preorganization certificate or subscription; 8.4transferable share; investment contract; voting trust certificate; certificate of deposit for a 8.5security; fractional undivided interest in oil, gas, or other mineral rights; put, call, straddle, 8.6option, or privilege on a security, certificate of deposit, or group or index of securities, 8.7including an interest therein or based on the value thereof; put, call, straddle, option, or 8.8privilege entered into on a national securities exchange relating to foreign currency; or, 8.9in general, an interest or instrument commonly known as a "security"; or a certificate of 8.10interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or 8.11warrant or right to subscribe to or purchase, any of the foregoing. The term: 8.12    (A) includes both a certificated and an uncertificated security; 8.13    (B) does not include an insurance or endowment policy or annuity contract under 8.14which an insurance company promises to pay a fixed or variable sum of money either in a 8.15lump sum or periodically for life or other specified period; 8.16    (C) does not include an interest in a contributory or noncontributory pension or 8.17welfare plan subject to the Employee Retirement Income Security Act of 1974; 8.18    (D) includes as an "investment contract," among other contracts, an interest in 8.19a limited partnership and a limited liability company and an investment in a viatical 8.20settlement or similar agreement; and 8.21    (E) does not include any equity interest of a closely held corporation or other entity 8.22with not more than 35 holders of the equity interest of such entity offered or sold pursuant 8.23to a transaction in which 100 percent of the equity interest of such entity is sold as a means 8.24to effect the sale of the business of the entity if the transaction has been negotiated on 8.25behalf of all purchasers and if all purchasers have access to inside information regarding 8.26the entity before consummating the transaction. 8.27    (31) "Self-regulatory organization" means a national securities exchange registered 8.28under the Securities Exchange Act of 1934, a national securities association of 8.29broker-dealers registered under the Securities Exchange Act of 1934, a clearing agency 8.30registered under the Securities Exchange Act of 1934, or the Municipal Securities 8.31Rulemaking Board established under the Securities Exchange Act of 1934. 8.32    (32) "Sign" means, with present intent to authenticate or adopt a record: 8.33    (A) to execute or adopt a tangible symbol; or 8.34    (B) to attach or logically associate with the record an electronic symbol, sound, 8.35or process. 9.1    (33) "State" means a state of the United States, the District of Columbia, Puerto 9.2Rico, the United States Virgin Islands, or any territory or insular possession subject to the 9.3jurisdiction of the United States. 9.4    (34) "Associated with" with respect to a person means any partner, officer, director, 9.5or manager new text begin , or employee new text end of such person or any person occupying a similar status or 9.6performing similar functions or any person directly or indirectly controlling, controlled 9.7by, or in common control with, such person, but does not include a person whose primary 9.8duties are ministerial or clerical. new text begin "Employee" includes an independent contractor who new text end 9.9 new text begin performs advisory functions on behalf of an investment adviser. new text end 9.10     new text begin (35) "Private fund" means an issuer that would be an investment company as new text end 9.11 new text begin defined in Section 3 of the Investment Company Act of 1940 but for section 3(c)(1) or new text end 9.12 new text begin 3(c)(7) of that act. new text end 9.13     new text begin (36) "Private fund adviser" means an investment adviser whose only advisory clients new text end 9.14 new text begin are one or more qualifying private funds. new text end 9.15     new text begin (37) "Qualifying private fund" means a private fund that meets the definition of a new text end 9.16 new text begin qualifying private fund in SEC Rule 203(m)-1, Code of Federal Regulations, title 17, new text end 9.17 new text begin section 275.203(m)-1. new text end 9.18     new text begin (38) "3(c)(1) fund" means a qualifying private fund that is eligible for the exclusion new text end 9.19 new text begin from the definition of an investment company under section 3(c)(1) of the Investment new text end 9.20 new text begin Company Act of 1940, United States Code, title 15, section 80a-3(c)(1). new text end 9.21     new text begin (39) "Venture capital fund" means a private fund that meets the definition of a new text end 9.22 new text begin venture capital fund in SEC Rule 203(1)-1, Code of Federal Regulations, title 17, section new text end 9.23 new text begin 275.203(1)-1. new text end 9.24 new text begin (40) "Funding portal" means any person acting as a funding portal as defined in new text end 9.25 new text begin section 3(a)(80) of the Securities Exchange Act of 1934, United States Code, title 15, new text end 9.26 new text begin section 78c(a)(80), and any rule adopted or order issued thereunder. new text end 9.27    Sec. 2. Minnesota Statutes 2012, section 80A.54, is amended to read: 9.2880A.54 SECTION 306; DENIAL, SUSPENSION, AND REVOCATION OF 9.29SECURITIES REGISTRATION. 9.30    (a) Stop orders. The administrator may issue a stop order denying effectiveness to, 9.31or suspending or revoking the effectiveness of, a registration statement if the administrator 9.32finds that the order is in the public interest and that: 9.33    (1) the registration statement as of its effective date or before the effective date in the 9.34case of an order denying effectiveness, an amendment under section 80A.53(i) as of its 9.35effective date, or a report under section 80A.53(h), is incomplete in a material respect or 10.1contains a statement that, in the light of the circumstances under which it was made, was 10.2false or misleading with respect to a material fact; 10.3    (2) this chapter or a rule adopted or order issued under this chapter or a condition 10.4imposed under this chapter has been willfully violated, in connection with the offering, by: 10.5    (A) the person filing the registration statement, if the person is directly or indirectly 10.6controlled by or acting for the issuer; 10.7    (B) the issuer; 10.8    (C) a partner, officer, or director of the issuer or a person having a similar status 10.9or performing similar functions; 10.10    (D) a promoter of the issuer; 10.11    (E) a person directly or indirectly controlling or controlled by the issuer; or 10.12    (F) an underwriter; 10.13    (3) the security registered or sought to be registered is the subject of a permanent or 10.14temporary injunction of a court of competent jurisdiction or an administrative stop order 10.15or similar order issued under any federal, foreign, or state law other than this chapter 10.16applicable to the offering, but the administrator may not institute a proceeding against an 10.17effective registration statement under this paragraph more than one year after the date of 10.18the order or injunction on which it is based, and the administrator may not issue an order 10.19under this paragraph on the basis of an order or injunction issued under the securities act 10.20of another state unless the order or injunction was based on conduct that would constitute, 10.21as of the date of the order, a ground for a stop order under this section; 10.22    (4) the issuer's enterprise or method of business includes or would include activities 10.23that are unlawful where performed; 10.24 new text begin (5) the terms of the securities offering are unfair and inequitable; provided, however, new text end 10.25 new text begin that the commissioner may not determine that an offering is unfair and inequitable solely on new text end 10.26 new text begin the grounds that the securities are to be sold at an excessive price where the offering price new text end 10.27 new text begin has been determined by arm's-length negotiation between nonaffiliated parties. The selling new text end 10.28 new text begin price of any security being sold by a broker-dealer licensed in this state who is unaffiliated new text end 10.29 new text begin with the issuer shall be presumed to have been determined by arm's-length negotiation; new text end 10.30    (5) new text begin (6) new text end with respect to a security sought to be registered under section 80A.51, there 10.31has been a failure to comply with the undertaking required by section 80A.51(b)(4); or 10.32    (6) new text begin (7) new text end the applicant or registrant has not paid the filing fee, but the administrator 10.33shall void the order if the deficiency is corrected. 10.34    (b) Institution of stop order. The administrator may not institute a stop order 10.35proceeding against an effective registration statement on the basis of conduct or a 10.36transaction known to the administrator when the registration statement became effective 11.1unless the proceeding is instituted within 30 days after the registration statement became 11.2effective. 11.3    (c) Summary process. The administrator may summarily revoke, deny, postpone, 11.4or suspend the effectiveness of a registration statement pending final determination of an 11.5administrative proceeding. Upon the issuance of the order, the administrator shall promptly 11.6notify each person specified in subsection (d) that the order has been issued; the reasons 11.7for the revocation, denial, postponement, or suspension; and that within 15 days after the 11.8receipt of a request in a record from the person the matter will be scheduled for a hearing. If 11.9a hearing is not requested and none is ordered by the administrator, within 30 days after the 11.10date of service of the order, the order becomes final. If a hearing is requested or ordered, 11.11the administrator, after notice of and opportunity for hearing for each person subject to the 11.12order, may modify or vacate the order or extend the order until final determination. 11.13    (d) Procedural requirements for stop order. A stop order may not be issued 11.14under this section without: 11.15    (1) appropriate notice to the applicant or registrant, the issuer, and the person on 11.16whose behalf the securities are to be or have been offered; 11.17    (2) an opportunity for hearing; and 11.18    (3) findings of fact and conclusions of law in a record in accordance with chapter 14. 11.19    (e) Modification or vacation of stop order. The administrator may modify or 11.20vacate a stop order issued under this section if the administrator finds that the conditions 11.21that caused its issuance have changed or that it is necessary or appropriate in the public 11.22interest or for the protection of investors. 11.23    Sec. 3. Minnesota Statutes 2012, section 80A.58, is amended to read: 11.2480A.58 SECTION 403; INVESTMENT ADVISER REGISTRATION 11.25REQUIREMENT AND EXEMPTIONS. 11.26    (a) Registration requirement. It is unlawful for a person to transact business in this 11.27state as an investment adviser new text begin or investment adviser representative new text end unless the person is 11.28registered under this chapter as an investment adviser or is exempt from registration as an 11.29investment adviser under subsection (b). 11.30    (b) Exemptions from registration. The following persons are exempt from the 11.31registration requirement of subsection (a): 11.32(1) any person whose only clients in this state are: 11.33    (A) federal covered investment advisers, investment advisers registered under this 11.34chapter, or broker-dealers registered under this chapter; 11.35    (B) institutional investors; 12.1(C) accredited investors; 12.2    (D) new text begin (B) new text end bona fide preexisting clients whose principal places of residence are not in 12.3this state if the investment adviser is registered under the securities act of the state in 12.4which the clients maintain principal places of residence; or 12.5    (E) new text begin (C) new text end any other client exempted by rule adopted or order issued under this chapter; 12.6    (2) a person without a place of business in this state if the person has had, during the 12.7preceding 12 months, not more than five clients that are resident in this state in addition 12.8to those specified under paragraph (1); or 12.9     new text begin (3) A private fund advisor, subject to the additional requirements of subsection (c), if new text end 12.10 new text begin the private fund adviser satisfies each of the following conditions: new text end 12.11     new text begin (i) neither the private fund adviser nor any of its advisory affiliates are subject new text end 12.12 new text begin to a disqualification as described in Rule 262 of SEC Regulation A, Code of Federal new text end 12.13 new text begin Regulations, title 17, section 230.262; new text end 12.14     new text begin (ii) the private fund adviser files with the state each report and amendment thereto new text end 12.15 new text begin that an exempt reporting adviser is required to file with the Securities and Exchange new text end 12.16 new text begin Commission pursuant to SEC Rule 204-4, Code of Federal Regulations, title 17, section new text end 12.17 new text begin 275.204-4; or new text end 12.18    (3) new text begin (4) new text end any other person exempted by rule adopted or order issued under this chapter. 12.19    (c) new text begin new text end new text begin Additional requirements for private fund advisers to certain 3(c)(1) funds. new text end 12.20 new text begin In order to qualify for the exemption described in subsection (b)(3), a private fund adviser new text end 12.21 new text begin who advises at least one 3(c)(1) fund that is not a venture capital fund shall, in addition to new text end 12.22 new text begin satisfying each of the conditions specified in subsection (b)(3), comply with the following new text end 12.23 new text begin requirements: new text end 12.24     new text begin (1) The private fund adviser shall advise only those 3(c)(1) funds, other than venture new text end 12.25 new text begin capital funds, whose outstanding securities, other than short-term paper, are beneficially new text end 12.26 new text begin owned entirely by persons who, after deducting the value of the primary residence from new text end 12.27 new text begin the person's net worth, would each meet the definition of a qualified client in SEC Rule new text end 12.28 new text begin 205-3, Code of Federal Regulations, title 17, section 275.205-3, at the time the securities new text end 12.29 new text begin are purchased from the issuer; new text end 12.30     new text begin (2) At the time of purchase, the private fund adviser shall disclose the following in new text end 12.31 new text begin writing to each beneficial owner of a 3(c)(1) fund that is not a venture capital fund: new text end 12.32     new text begin (i) all services, if any, to be provided to individual beneficial owners; new text end 12.33     new text begin (ii) all duties, if any, the investment adviser owes to the beneficial owners; and new text end 12.34     new text begin (iii) any other material information affecting the rights or responsibilities of the new text end 12.35 new text begin beneficial owners; and new text end 13.1     new text begin (3) The private fund adviser shall obtain on an annual basis audited financial new text end 13.2 new text begin statements of each 3(c)(1) fund that is not a venture capital fund and shall deliver a copy new text end 13.3 new text begin of such audited financial statements to each beneficial owner of the fund. new text end 13.4     new text begin (d) new text end new text begin Federal covered investment advisers. new text end new text begin If a private fund adviser is registered new text end 13.5 new text begin with the Securities and Exchange Commission, the adviser shall not be eligible for the new text end 13.6 new text begin private fund adviser exemption under paragraph (b), clause (3), and shall comply with new text end 13.7 new text begin the state notice filing requirements applicable to federal covered investment advisers new text end 13.8 new text begin in section 80A.58. new text end 13.9     new text begin (e) new text end new text begin Investment adviser representatives. new text end new text begin A person is exempt from the registration new text end 13.10 new text begin requirements of section 80A.58, paragraph (a), if he or she is employed by or associated new text end 13.11 new text begin with an investment adviser that is exempt from registration in this state pursuant to the new text end 13.12 new text begin private fund adviser exemption, under paragraph (b), clause (3), and does not otherwise new text end 13.13 new text begin engage in activities that would require registration as an investment adviser representative. new text end 13.14     new text begin (f) new text end new text begin Electronic filings. new text end new text begin The report filings described in subsection (b)(3)(ii) shall be new text end 13.15 new text begin made electronically through the IARD. A report shall be deemed filed when the report new text end 13.16 new text begin and the fee required by sections 80A.60 and 80A.65 are filed and accepted by the IARD new text end 13.17 new text begin on the state's behalf. new text end 13.18     new text begin (g) new text end new text begin Transition. new text end new text begin An investment adviser who becomes ineligible for the exemption new text end 13.19 new text begin provided by this section must comply with all applicable laws and rules requiring new text end 13.20 new text begin registration or notice filing within 90 days from the date of the investment adviser's new text end 13.21 new text begin eligibility for this exemption ceases. new text end 13.22 new text begin (h) new text end new text begin Grandfathering for investment advisers to 3(c)(1) funds with nonqualified new text end 13.23 new text begin clients. new text end new text begin An investment adviser to a 3(c)(1) fund (other than a venture capital fund) that new text end 13.24 new text begin has one or more beneficial owners who are not qualified clients as described in paragraph new text end 13.25 new text begin (c), clause (1), is eligible for the exemption contained in paragraph (b), clause (3), if the new text end 13.26 new text begin following conditions are satisfied: new text end 13.27 new text begin (1) the subject fund existed prior to the effective date of this legislation; new text end 13.28 new text begin (2) as of the effective date of this legislation, the subject fund ceases to accept new text end 13.29 new text begin beneficial owners who are not qualified clients, as described in paragraph (c), clause (1); new text end 13.30 new text begin (3) the investment adviser discloses in writing the information described in new text end 13.31 new text begin paragraph (c), clause (2), to all beneficial owners of the fund; and new text end 13.32 new text begin (4) as of the effective date of this legislation, the investment adviser delivers audited new text end 13.33 new text begin financial statements as required by paragraph (c), clause (3). new text end 13.34     new text begin (i) new text end Limits on employment or association. It is unlawful for an investment adviser, 13.35directly or indirectly, to employ or associate with an individual to engage in an activity 13.36related to investment advice in this state if the registration of the individual is suspended 14.1or revoked or the individual is barred from employment or association with an investment 14.2adviser, federal covered investment adviser, or broker-dealer by an order under this 14.3chapter, the Securities and Exchange Commission, or a self-regulatory organization, 14.4unless the investment adviser did not know, and in the exercise of reasonable care could 14.5not have known, of the suspension, revocation, or bar. Upon request from the investment 14.6adviser and for good cause, the administrator, by order, may waive, in whole or in part, the 14.7application of the prohibitions of this subsection to the investment adviser. 14.8    Sec. 4. Minnesota Statutes 2012, section 80A.61, is amended to read: 14.980A.61 SECTION 406; REGISTRATION BY BROKER-DEALER, AGENT, 14.10AND new text begin FUNDING PORTAL, new text end INVESTMENT ADVISER new text begin , AND INVESTMENT new text end 14.11 new text begin ADVISER REPRESENTATIVE new text end . 14.12    (a) Application for initial registration new text begin by broker-dealer, agent, or investment new text end 14.13 new text begin adviser new text end . A person shall register as a broker-dealer, agent, or investment adviser by filing 14.14an application and a consent to service of process complying with section 80A.88, and 14.15paying the fee specified in section 80A.65 and any reasonable fees charged by the designee 14.16of the administrator for processing the filing. The application must contain: 14.17    (1) the information or record required for the filing of a uniform application; and 14.18    (2) upon request by the administrator, any other financial or other information or 14.19record that the administrator determines is appropriate. 14.20    (b) Amendment. If the information or record contained in an application filed under 14.21subsection (a) is or becomes inaccurate or incomplete in a material respect, the registrant 14.22shall promptly file a correcting amendment. 14.23    (c) Effectiveness of registration. If an order is not in effect and a proceeding is not 14.24pending under section 80A.67, registration becomes effective at noon on the 45th day after 14.25a completed application is filed, unless the registration is denied. A rule adopted or order 14.26issued under this chapter may set an earlier effective date or may defer the effective date 14.27until noon on the 45th day after the filing of any amendment completing the application. 14.28    (d) Registration renewal. A registration is effective until midnight on December 14.2931 of the year for which the application for registration is filed. Unless an order is in 14.30effect under section 80A.67, a registration may be automatically renewed each year by 14.31filing such records as are required by rule adopted or order issued under this chapter, by 14.32paying the fee specified in section 80A.65, and by paying costs charged by the designee of 14.33the administrator for processing the filings. 14.34    (e) Additional conditions or waivers. A rule adopted or order issued under this 14.35chapter may impose such other conditions, not inconsistent with the National Securities 15.1Markets Improvement Act of 1996. An order issued under this chapter may waive, in 15.2whole or in part, specific requirements in connection with registration as are in the public 15.3interest and for the protection of investors. 15.4 new text begin (f) A funding portal that has its principal place of business in the state of Minnesota new text end 15.5 new text begin shall register with the state of Minnesota by filing with the administrator a copy of the new text end 15.6 new text begin information or record required for the filing of an application for registration as a funding new text end 15.7 new text begin portal in the manner established by the Securities and Exchange Commission and/or the new text end 15.8 new text begin Financial Institutions Regulatory Authority (FINRA), along with any rule adopted or new text end 15.9 new text begin order issued, and any amendments thereto. new text end 15.10     new text begin (g) new text end new text begin Application for investment adviser representative registration. new text end 15.11     new text begin (1) The application for initial registration as an investment adviser representative new text end 15.12 new text begin pursuant to section 80A.58 is made by completing Form U-4 (Uniform Application for new text end 15.13 new text begin Securities Industry Registration or Transfer) in accordance with the form instructions new text end 15.14 new text begin and by filing the form U-4 with the IARD. The application for initial registration must new text end 15.15 new text begin also include the following: new text end 15.16     new text begin (i) proof of compliance by the investment adviser representative with the new text end 15.17 new text begin examination requirements of: new text end 15.18     new text begin (A) the Uniform Investment Adviser Law Examination (Series 65); or new text end 15.19     new text begin (B) the General Securities Representative Examination (Series 7) and the Uniform new text end 15.20 new text begin Combined State Law Examination (Series 66); new text end 15.21     new text begin (ii) any other information the administrator may reasonably require. new text end 15.22     new text begin (2) The application for the annual renewal registration as an investment adviser new text end 15.23 new text begin representative shall be filed with the IARD. new text end 15.24     new text begin (3)(i) The investment adviser representative is under a continuing obligation to new text end 15.25 new text begin update information required by Form U-4 as changes occur. new text end 15.26     new text begin (ii) An investment adviser representative and the investment adviser must file new text end 15.27 new text begin promptly with the IARD any amendments to the representative's Form U-4; and new text end 15.28     new text begin (iii) An amendment will be considered to be filed promptly if the amendment is filed new text end 15.29 new text begin within 30 days of the event that requires the filing of the amendment. new text end 15.30     new text begin (4) An application for initial or renewal of registration is not considered filed for new text end 15.31 new text begin purposes of section 80A.58 until the required fee and all required submissions have been new text end 15.32 new text begin received by the administrator. new text end 15.33     new text begin (5) The application for withdrawal of registration as an investment adviser new text end 15.34 new text begin representative pursuant to section 80A.58 shall be completed by following the instructions new text end 15.35 new text begin on Form U-5 (Uniform Termination Notice for Securities Industry Registration) and filed new text end 15.36 new text begin upon Form U-5 with the IARD. new text end 16.1    Sec. 5. Minnesota Statutes 2012, section 80A.66, is amended to read: 16.280A.66 SECTION 411; POSTREGISTRATION REQUIREMENTS. 16.3    (a) Financial requirements. Subject to Section 15(h) of the Securities Exchange 16.4Act of 1934 (15 U.S.C. Section 78o(h)) or Section 222 of the Investment Advisers Act 16.5of 1940 (15 U.S.C. Section 80b-22), a rule adopted or order issued under this chapter 16.6may establish minimum financial requirements for broker-dealers registered or required 16.7to be registered under this chapter and investment advisers registered or required to be 16.8registered under this chapter. 16.9    (b) Financial reports. Subject to Section 15(h) of the Securities Exchange Act of 16.101934 (15 U.S.C. Section 78o(h)) or Section 222(b) of the Investment Advisers Act of 1940 16.11(15 U.S.C. Section 80b-22), a broker-dealer registered or required to be registered under 16.12this chapter and an investment adviser registered or required to be registered under this 16.13chapter shall file such financial reports as are required by a rule adopted or order issued 16.14under this chapter. If the information contained in a record filed under this subsection is or 16.15becomes inaccurate or incomplete in a material respect, the registrant shall promptly file 16.16a correcting amendment. 16.17    (c) Record keeping. Subject to Section 15(h) of the Securities Exchange Act of 16.181934 (15 U.S.C. Section 78o(h)) or Section 222 of the Investment Advisers Act of 1940 16.19(15 U.S.C. Section 80b-22): 16.20    (1) a broker-dealer registered or required to be registered under this chapter and an 16.21investment adviser registered or required to be registered under this chapter shall make 16.22and maintain the accounts, correspondence, memoranda, papers, books, and other records 16.23required by rule adopted or order issued under this chapter; 16.24    (2) broker-dealer records required to be maintained under paragraph (1) may be 16.25maintained in any form of data storage acceptable under Section 17(a) of the Securities 16.26Exchange Act of 1934 (15 U.S.C. Section 78q(a)) if they are readily accessible to the 16.27administrator; and 16.28    (3) Investment adviser records required to be maintained under paragraph new text begin (d) new text end (1) 16.29may be maintained in any form of data storage required by rule adopted or order issued 16.30under this chapter. 16.31 new text begin (d) new text end new text begin Records and reports of private funds. new text end 16.32 new text begin (1) new text end new text begin In general. new text end new text begin An investment adviser to a private fund shall maintain such records new text end 16.33 new text begin of, and file with the administrator such reports and amendments thereto, that an exempt new text end 16.34 new text begin reporting adviser is required to file with the Securities and Exchange Commission pursuant new text end 16.35 new text begin to SEC Rule 204-4, Code of Federal Regulations, title 17, section 275.204-4. new text end 17.1 new text begin (2) new text end new text begin Treatment of records. new text end new text begin The records and reports of any private fund to which new text end 17.2 new text begin an investment adviser provides investment advice shall be deemed to be the records and new text end 17.3 new text begin reports of the investment adviser. new text end 17.4 new text begin (3) new text end new text begin Required information. new text end new text begin The records and reports required to be maintained new text end 17.5 new text begin by an investment adviser, which are subject to inspection by a representative of the new text end 17.6 new text begin administrator at any time, shall include for each private fund advised by the investment new text end 17.7 new text begin adviser, a description of: new text end 17.8 new text begin (A) the amount of assets under management; new text end 17.9 new text begin (B) the use of leverage, including off-balance-sheet leverage, as to the assets under new text end 17.10 new text begin management; new text end 17.11 new text begin (C) counterparty credit risk exposure; new text end 17.12 new text begin (D) trading and investment positions; new text end 17.13 new text begin (E) valuation policies and practices of the fund; new text end 17.14 new text begin (F) types of assets held; new text end 17.15 new text begin (G) side arrangements or side letters, whereby certain investors in a fund obtain new text end 17.16 new text begin more favorable rights or entitlements than other investors; new text end 17.17 new text begin (H) trading practices; and new text end 17.18 new text begin (I) such other information as the administrator determines is necessary and new text end 17.19 new text begin appropriate in the public interest and for the protection of investors, which may include new text end 17.20 new text begin the establishment of different reporting requirements for different classes of fund advisers, new text end 17.21 new text begin based on the type or size of the private fund being advised. new text end 17.22 new text begin (4) new text end new text begin Filing of records. new text end new text begin A rule or order under this chapter may require each investment new text end 17.23 new text begin adviser to a private fund to file reports containing such information as the administrator new text end 17.24 new text begin deems necessary and appropriate in the public interest and for the protection of investors. new text end 17.25    (d) new text begin (e) new text end Audits or inspections. The records of a broker-dealer registered or required 17.26to be registered under this chapter and of an investment adviser registered or required to 17.27be registered under this chapter new text begin , including the records of a private fund described in new text end 17.28 new text begin paragraph (d) and the records of investment advisers to private funds, new text end are subject to such 17.29reasonable periodic, special, or other audits or inspections by a representative of the 17.30administrator, within or without this state, as the administrator considers necessary or 17.31appropriate in the public interest and for the protection of investors. An audit or inspection 17.32may be made at any time and without prior notice. The administrator may copy, and 17.33remove for audit or inspection copies of, all records the administrator reasonably considers 17.34necessary or appropriate to conduct the audit or inspection. The administrator may assess 17.35a reasonable charge for conducting an audit or inspection under this subsection. 18.1    (e) new text begin (f) new text end Custody and discretionary authority bond or insurance. Subject to Section 18.215(h) of the Securities Exchange Act of 1934 (15 U.S.C. Section 78o(h)) or Section 222 of 18.3the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-22), a rule adopted or order 18.4issued under this chapter may require a broker-dealer or investment adviser that has custody 18.5of or discretionary authority over funds or securities of a customer or client to obtain 18.6insurance or post a bond or other satisfactory form of security in an amount not to exceed 18.7 new text begin of at least new text end $25,000 new text begin , but not to exceed $100,000 new text end . The administrator may determine the 18.8requirements of the insurance, bond, or other satisfactory form of security. Insurance or a 18.9bond or other satisfactory form of security may not be required of a broker-dealer registered 18.10under this chapter whose net capital exceeds, or of an investment adviser registered under 18.11this chapter whose minimum financial requirements exceed, the amounts required by rule 18.12or order under this chapter. The insurance, bond, or other satisfactory form of security 18.13must permit an action by a person to enforce any liability on the insurance, bond, or other 18.14satisfactory form of security if instituted within the time limitations in section 80A.76(j)(2). 18.15    (f) new text begin (g) new text end Requirements for custody. Subject to Section 15(h) of the Securities 18.16Exchange Act of 1934 (15 U.S.C. Section 78o(h)) or Section 222 of the Investment 18.17Advisers Act of 1940 (15 U.S.C. Section 80b-22), an agent may not have custody of 18.18funds or securities of a customer except under the supervision of a broker-dealer and an 18.19investment adviser representative may not have custody of funds or securities of a client 18.20except under the supervision of an investment adviser or a federal covered investment 18.21adviser. A rule adopted or order issued under this chapter may prohibit, limit, or impose 18.22conditions on a broker-dealer regarding custody of funds or securities of a customer and 18.23on an investment adviser regarding custody of securities or funds of a client. 18.24    (g) new text begin (h) new text end Investment adviser brochure rule. With respect to an investment adviser 18.25registered or required to be registered under this chapter, a rule adopted or order 18.26issued under this chapter may require that information or other record be furnished or 18.27disseminated to clients or prospective clients in this state as necessary or appropriate in the 18.28public interest and for the protection of investors and advisory clients. 18.29    (h) new text begin (i) new text end Continuing education. A rule adopted or order issued under this 18.30chapter may require an individual registered under section 80A.57 to participate in a 18.31continuing education program approved by the Securities and Exchange Commission and 18.32administered by a self-regulatory organization. 18.33    Sec. 6. Minnesota Statutes 2012, section 80C.08, is amended by adding a subdivision 18.34to read: 19.1     new text begin Subd. 3. new text end new text begin Withdrawal due to inactivity. new text end new text begin If no activity occurs with respect to the new text end 19.2 new text begin public offering statement for a period of 120 days the commissioner may declare by new text end 19.3 new text begin order the application withdrawn. new text end