HF 1243

2nd Engrossment - 88th Legislature (2013 - 2014) Posted on 05/18/2013 07:37pm

A bill for an act
relating to commerce; modifying securities registration and franchise registration
provisions; amending Minnesota Statutes 2012, sections 80A.41; 80A.54;
80A.58; 80A.61; 80A.66; 80C.08, by adding a subdivision.

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

Section 1.

Minnesota Statutes 2012, section 80A.41, is amended to read:

80A.41 SECTION 102; DEFINITIONS.

In this chapter, unless the context otherwise requires:

(1) "Accredited investor" means an accredited investor as the term is defined in Rule
501(a) of Regulation D adopted pursuant to the Securities Act of 1933.

(2) "Administrator" means the commissioner of commerce.

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

(4) "Bank" means:

(A) a banking institution organized under the laws of the United States;

(B) a member bank of the Federal Reserve System;

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

(D) a receiver, conservator, or other liquidating agent of any institution or firm
included in subparagraph (A), (B), or (C).

(5) "Broker-dealer" means a person engaged in the business of effecting transactions
in securities for the account of others or for the person's own account. The term does
not include:

(A) an agent;

(B) an issuer;

(C) a depository institution; provided such activities are conducted in accordance
with such rules as may be adopted by the administrator;

(D) an international banking institution; or

(E) a person excluded by rule adopted or order issued under this chapter.

(6) "Depository institution" means:

(A) a bank; or

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

(i) an insurance company or other organization primarily engaged in the business
of insurance;

(ii) a Morris Plan bank; or

(iii) an industrial loan company that is not an "insured depository institution" as
defined in section 3(c)(2) of the Federal Deposit Insurance Act, United States Code, title
12, section 1813(c)(2), or any successor federal statute.

(7) "Federal covered investment adviser" means a person registered under the
Investment Advisers Act of 1940.

(8) "Federal covered security" means a security that is, or upon completion of a
transaction will be, a covered security under Section 18(b) of the Securities Act of 1933
(15 U.S.C. Section 77r(b)) or rules or regulations adopted pursuant to that provision.

(9) "Filing" means the receipt under this chapter of a record by the administrator or
a designee of the administrator.

(10) "Fraud," "deceit," and "defraud" are not limited to common law deceit.

(11) "Guaranteed" means guaranteed as to payment of all principal and all interest.

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

(A) a depository institution or international banking institution;

(B) an insurance company;

(C) a separate account of an insurance company;

(D) an investment company as defined in the Investment Company Act of 1940;

(E) a broker-dealer registered under the Securities Exchange Act of 1934;

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

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

(H) a trust, if it has total assets in excess of $10,000,000, its trustee is a depository
institution, and its participants are exclusively plans of the types identified in subparagraph
(F) or (G), regardless of the size of their assets, except a trust that includes as participants
self-directed individual retirement accounts or similar self-directed plans;

(I) an organization described in Section 501(c)(3) of the Internal Revenue Code (26
U.S.C. Section 501(c)(3)), corporation, Massachusetts trust or similar business trust,
limited liability company, or partnership, not formed for the specific purpose of acquiring
the securities offered, with total assets in excess of $10,000,000;

(J) a small business investment company licensed by the Small Business
Administration under Section 301(c) of the Small Business Investment Act of 1958 (15
U.S.C. Section 681(c)) with total assets in excess of $10,000,000;

(K) a private business development company as defined in Section 202(a)(22) of
the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-2(a)(22)) with total assets
in excess of $10,000,000;

(L) a federal covered investment adviser acting for its own account;

(M) a "qualified institutional buyer" as defined in Rule 144A(a)(1), other than Rule
144A(a)(1)(i)(H), adopted under the Securities Act of 1933 (17 C.F.R. 230.144A);

(N) a "major U.S. institutional investor" as defined in Rule 15a-6(b)(4)(i) adopted
under the Securities Exchange Act of 1934 (17 C.F.R. 240.15a-6);

(O) any other person, other than an individual new text begin or a private fund new text end , of institutional
character with total assets in excess of $10,000,000 not organized for the specific purpose
of evading this chapter; or

(P) any other person specified by rule adopted or order issued under this chapter;

(13) "Insurance company" means a company organized as an insurance company
whose primary business is writing insurance or reinsuring risks underwritten by insurance
companies and which is subject to supervision by the insurance commissioner or a similar
official or agency of a state.

(14) "Insured" means insured as to payment of all principal and all interest.

(15) "International banking institution" means an international financial institution
of which the United States is a member and whose securities are exempt from registration
under the Securities Act of 1933.

(16) "Investment adviser" means a person that, for compensation, engages in the
business of advising others, either directly or through publications or writings, as to the
value of securities or the advisability of investing in, purchasing, or selling securities or
that, for compensation and as a part of a regular business, issues or promulgates analyses
or reports concerning securities. The term includes a financial planner or other person
that, as an integral component of other financially related services, provides investment
advice to others for compensation as part of a business or that holds itself out as providing
investment advice to others for compensation. The term does not include:

(A) an investment adviser representative;

(B) a lawyer, accountant, engineer, or teacher whose performance of investment
advice is solely incidental to the practice of the person's profession;

(C) a broker-dealer or its agents whose performance of investment advice is solely
incidental to the conduct of business as a broker-dealer and that does not receive special
compensation for the investment advice;

(D) a publisher of a bona fide newspaper, news magazine, or business or financial
publication of general and regular circulation;

(E) a federal covered investment adviser;

(F) a bank or savings institution;

(G) any other person that is excluded by the Investment Advisers Act of 1940 from
the definition of investment adviser; or

(H) any other person excluded by rule adopted or order issued under this chapter.

(17) "Investment adviser representative" means an individual employed by or
associated with an investment adviser or federal covered investment adviser and who
makes any recommendations or otherwise gives investment advice regarding securities,
manages accounts or portfolios of clients, determines which recommendation or advice
regarding securities should be given, provides investment advice or holds herself or
himself out as providing investment advice, receives compensation to solicit, offer, or
negotiate for the sale of or for selling investment advice, or supervises employees who
perform any of the foregoing. The term does not include an individual who:

(A) performs only clerical or ministerial acts;

(B) is an agent whose performance of investment advice is solely incidental to
the individual acting as an agent and who does not receive special compensation for
investment advisory services;

(C) is employed by or associated with a federal covered investment adviser, unless the
individual has a "place of business" in this state as that term is defined by rule adopted under
Section 203A of the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-3a) and is

(i) an "investment adviser representative" as that term is defined by rule adopted
under Section 203A of the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-3a); or

(ii) not a "supervised person" as that term is defined in Section 202(a)(25) of the
Investment Advisers Act of 1940 (15 U.S.C. Section 80b-2(a)(25)); or

(D) is excluded by rule adopted or order issued under this chapter.

(18) "Issuer" means a person that issues or proposes to issue a security, subject to
the following:

(A) The issuer of a voting trust certificate, collateral trust certificate, certificate of
deposit for a security, or share in an investment company without a board of directors or
individuals performing similar functions is the person performing the acts and assuming
the duties of depositor or manager pursuant to the trust or other agreement or instrument
under which the security is issued.

(B) The issuer of an equipment trust certificate or similar security serving the same
purpose is the person by which the property is or will be used or to which the property
or equipment is or will be leased or conditionally sold or that is otherwise contractually
responsible for assuring payment of the certificate.

(C) The issuer of a fractional undivided interest in an oil, gas, or other mineral lease
or in payments out of production under a lease, right, or royalty is the owner of an interest
in the lease or in payments out of production under a lease, right, or royalty, whether
whole or fractional, that creates fractional interests for the purpose of sale.

(19) "Nonissuer transaction" or "nonissuer distribution" means a transaction or
distribution not directly or indirectly for the benefit of the issuer.

(20) "Offer to purchase" includes an attempt or offer to obtain, or solicitation of an
offer to sell, a security or interest in a security for value. The term does not include a
tender offer that is subject to Section 14(d) of the Securities Exchange Act of 1934 (15
U.S.C. Section 78n(d)).

(21) "Person" means an individual; corporation; business trust; estate; trust;
partnership; limited liability company; association; joint venture; government;
governmental subdivision, agency, or instrumentality; public corporation; or any other
legal or commercial entity.

(22) "Place of business" of a broker-dealer, an investment adviser, or a federal
covered investment adviser means:

(A) an office at which the broker-dealer, investment adviser, or federal covered
investment adviser regularly provides brokerage or investment advice or solicits, meets
with, or otherwise communicates with customers or clients; or

(B) any other location that is held out to the general public as a location at which
the broker-dealer, investment adviser, or federal covered investment adviser provides
brokerage or investment advice or solicits, meets with, or otherwise communicates with
customers or clients.

(23) "Predecessor Act" means Minnesota Statutes 2002, sections 80A.01 to 80A.31.

(24) "Price amendment" means the amendment to a registration statement filed under
the Securities Act of 1933 or, if an amendment is not filed, the prospectus or prospectus
supplement filed under the Securities Act of 1933 that includes a statement of the offering
price, underwriting and selling discounts or commissions, amount of proceeds, conversion
rates, call prices, and other matters dependent upon the offering price.

(25) "Principal place of business" of a broker-dealer or an investment adviser means
the executive office of the broker-dealer or investment adviser from which the officers,
partners, or managers of the broker-dealer or investment adviser direct, control, and
coordinate the activities of the broker-dealer or investment adviser.

(26) Only for purposes of calculating the number of purchasers under section
80A.46, clauses (1) and (14), "purchaser" does not include:

(A) any relative, spouse, or relative of the spouse of a purchaser who has the same
principal residence as the purchaser;

(B) any trust or estate in which a purchaser and any of the persons related to him as
specified in Regulation D, Rule 501(e)(1)(i) or (e)(1)(ii) collectively have more than 50
percent of the beneficial interest (excluding contingent interests);

(C) any corporation or other organization of which a purchaser and any of the
persons related to the purchaser as specified in Regulation D, Rule 501(e)(1)(i) or
(e)(1)(ii) collectively are beneficial owners of more than 50 percent of the equity securities
(excluding directors' qualifying shares) or equity interests; and

(D) any accredited investor.

A corporation, partnership, or other entity must be counted as one purchaser. If,
however, that entity is organized for the specific purpose of acquiring the securities offered
and is not an accredited investor, then each beneficial owner of equity securities or equity
interests in the entity shall count as a separate purchaser for all provisions of Regulation
D, except to the extent provided in Regulation D, Rule 501(e)(1).

A noncontributory employee benefit plan within the meaning of Title I of the
Employee Retirement Income Security Act of 1974 shall be counted as one purchaser
where the trustee makes all investment decisions for the plan.

(27) "Record," except in the phrases "of record," "official record," and "public
record," means information that is inscribed on a tangible medium or that is stored in an
electronic or other medium and is retrievable in perceivable form.

(28) "Sale" includes every contract of sale, contract to sell, or disposition of, a
security or interest in a security for value, and "offer to sell" includes every attempt or
offer to dispose of, or solicitation of an offer to purchase, a security or interest in a
security for value.

(A) A security given or delivered with, or as a bonus on account of, any purchase of
securities or any other thing is considered to constitute part of the subject of the purchase
and to have been offered and sold for value.

(B) A gift of assessable stock is considered to involve an offer and sale.

(C) A sale or offer of a warrant or right to purchase or subscribe to another security
of the same or another issuer and a sale or offer of a security that gives the holder a present
or future right or privilege to convert the security into another security of the same or
another issuer, are each considered to include an offer of the other security.

(29) "Securities and Exchange Commission" means the United States Securities and
Exchange Commission.

(30) "Security" means a note; stock; treasury stock; security future; bond; debenture;
evidence of indebtedness; certificate of interest or participation in a profit-sharing
agreement; collateral trust certificate; preorganization certificate or subscription;
transferable share; investment contract; voting trust certificate; certificate of deposit for a
security; fractional undivided interest in oil, gas, or other mineral rights; put, call, straddle,
option, or privilege on a security, certificate of deposit, or group or index of securities,
including an interest therein or based on the value thereof; put, call, straddle, option, or
privilege entered into on a national securities exchange relating to foreign currency; or,
in general, an interest or instrument commonly known as a "security"; or a certificate of
interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or
warrant or right to subscribe to or purchase, any of the foregoing. The term:

(A) includes both a certificated and an uncertificated security;

(B) does not include an insurance or endowment policy or annuity contract under
which an insurance company promises to pay a fixed or variable sum of money either in a
lump sum or periodically for life or other specified period;

(C) does not include an interest in a contributory or noncontributory pension or
welfare plan subject to the Employee Retirement Income Security Act of 1974;

(D) includes as an "investment contract," among other contracts, an interest in
a limited partnership and a limited liability company and an investment in a viatical
settlement or similar agreement; and

(E) does not include any equity interest of a closely held corporation or other entity
with not more than 35 holders of the equity interest of such entity offered or sold pursuant
to a transaction in which 100 percent of the equity interest of such entity is sold as a means
to effect the sale of the business of the entity if the transaction has been negotiated on
behalf of all purchasers and if all purchasers have access to inside information regarding
the entity before consummating the transaction.

(31) "Self-regulatory organization" means a national securities exchange registered
under the Securities Exchange Act of 1934, a national securities association of
broker-dealers registered under the Securities Exchange Act of 1934, a clearing agency
registered under the Securities Exchange Act of 1934, or the Municipal Securities
Rulemaking Board established under the Securities Exchange Act of 1934.

(32) "Sign" means, with present intent to authenticate or adopt a record:

(A) to execute or adopt a tangible symbol; or

(B) to attach or logically associate with the record an electronic symbol, sound,
or process.

(33) "State" means a state of the United States, the District of Columbia, Puerto
Rico, the United States Virgin Islands, or any territory or insular possession subject to the
jurisdiction of the United States.

(34) "Associated with" with respect to a person means any partner, officer, director,
deleted text begin or deleted text end manager new text begin , or employee new text end of such person or any person occupying a similar status or
performing similar functions or any person directly or indirectly controlling, controlled
by, or in common control with, such person, but does not include a person whose primary
duties are ministerial or clerical. new text begin "Employee" includes an independent contractor who
performs advisory functions on behalf of an investment adviser.
new text end

new text begin (35) "Private fund" means an issuer that would be an investment company as
defined in Section 3 of the Investment Company Act of 1940 but for section 3(c)(1) or
3(c)(7) of that act.
new text end

new text begin (36) "Private fund adviser" means an investment adviser whose only advisory clients
are one or more qualifying private funds.
new text end

new text begin (37) "Qualifying private fund" means a private fund that meets the definition of a
qualifying private fund in SEC Rule 203(m)-1, Code of Federal Regulations, title 17,
section 275.203(m)-1.
new text end

new text begin (38) "3(c)(1) fund" means a qualifying private fund that is eligible for the exclusion
from the definition of an investment company under section 3(c)(1) of the Investment
Company Act of 1940, United States Code, title 15, section 80a-3(c)(1).
new text end

new text begin (39) "Venture capital fund" means a private fund that meets the definition of a
venture capital fund in SEC Rule 203(1)-1, Code of Federal Regulations, title 17, section
275.203(1)-1.
new text end

new text begin (40) "Funding portal" means any person acting as a funding portal as defined in
section 3(a)(80) of the Securities Exchange Act of 1934, United States Code, title 15,
section 78c(a)(80), and any rule adopted or order issued thereunder.
new text end

Sec. 2.

Minnesota Statutes 2012, section 80A.54, is amended to read:

80A.54 SECTION 306; DENIAL, SUSPENSION, AND REVOCATION OF
SECURITIES REGISTRATION.

(a) Stop orders. The administrator may issue a stop order denying effectiveness to,
or suspending or revoking the effectiveness of, a registration statement if the administrator
finds that the order is in the public interest and that:

(1) the registration statement as of its effective date or before the effective date in the
case of an order denying effectiveness, an amendment under section 80A.53(i) as of its
effective date, or a report under section 80A.53(h), is incomplete in a material respect or
contains a statement that, in the light of the circumstances under which it was made, was
false or misleading with respect to a material fact;

(2) this chapter or a rule adopted or order issued under this chapter or a condition
imposed under this chapter has been willfully violated, in connection with the offering, by:

(A) the person filing the registration statement, if the person is directly or indirectly
controlled by or acting for the issuer;

(B) the issuer;

(C) a partner, officer, or director of the issuer or a person having a similar status
or performing similar functions;

(D) a promoter of the issuer;

(E) a person directly or indirectly controlling or controlled by the issuer; or

(F) an underwriter;

(3) the security registered or sought to be registered is the subject of a permanent or
temporary injunction of a court of competent jurisdiction or an administrative stop order
or similar order issued under any federal, foreign, or state law other than this chapter
applicable to the offering, but the administrator may not institute a proceeding against an
effective registration statement under this paragraph more than one year after the date of
the order or injunction on which it is based, and the administrator may not issue an order
under this paragraph on the basis of an order or injunction issued under the securities act
of another state unless the order or injunction was based on conduct that would constitute,
as of the date of the order, a ground for a stop order under this section;

(4) the issuer's enterprise or method of business includes or would include activities
that are unlawful where performed;

new text begin (5) the terms of the securities offering are unfair and inequitable; provided, however,
that the commissioner may not determine that an offering is unfair and inequitable solely on
the grounds that the securities are to be sold at an excessive price where the offering price
has been determined by arm's-length negotiation between nonaffiliated parties. The selling
price of any security being sold by a broker-dealer licensed in this state who is unaffiliated
with the issuer shall be presumed to have been determined by arm's-length negotiation;
new text end

deleted text begin (5) deleted text end new text begin (6) new text end with respect to a security sought to be registered under section 80A.51, there
has been a failure to comply with the undertaking required by section 80A.51(b)(4); or

deleted text begin (6) deleted text end new text begin (7) new text end the applicant or registrant has not paid the filing fee, but the administrator
shall void the order if the deficiency is corrected.

(b) Institution of stop order. The administrator may not institute a stop order
proceeding against an effective registration statement on the basis of conduct or a
transaction known to the administrator when the registration statement became effective
unless the proceeding is instituted within 30 days after the registration statement became
effective.

(c) Summary process. The administrator may summarily revoke, deny, postpone,
or suspend the effectiveness of a registration statement pending final determination of an
administrative proceeding. Upon the issuance of the order, the administrator shall promptly
notify each person specified in subsection (d) that the order has been issued; the reasons
for the revocation, denial, postponement, or suspension; and that within 15 days after the
receipt of a request in a record from the person the matter will be scheduled for a hearing. If
a hearing is not requested and none is ordered by the administrator, within 30 days after the
date of service of the order, the order becomes final. If a hearing is requested or ordered,
the administrator, after notice of and opportunity for hearing for each person subject to the
order, may modify or vacate the order or extend the order until final determination.

(d) Procedural requirements for stop order. A stop order may not be issued
under this section without:

(1) appropriate notice to the applicant or registrant, the issuer, and the person on
whose behalf the securities are to be or have been offered;

(2) an opportunity for hearing; and

(3) findings of fact and conclusions of law in a record in accordance with chapter 14.

(e) Modification or vacation of stop order. The administrator may modify or
vacate a stop order issued under this section if the administrator finds that the conditions
that caused its issuance have changed or that it is necessary or appropriate in the public
interest or for the protection of investors.

Sec. 3.

Minnesota Statutes 2012, section 80A.58, is amended to read:

80A.58 SECTION 403; INVESTMENT ADVISER REGISTRATION
REQUIREMENT AND EXEMPTIONS.

(a) Registration requirement. It is unlawful for a person to transact business in this
state as an investment adviser new text begin or investment adviser representative new text end unless the person is
registered under this chapter deleted text begin as an investment adviser deleted text end or is exempt from registration deleted text begin as an
investment adviser deleted text end under subsection (b).

(b) Exemptions from registration. The following persons are exempt from the
registration requirement of subsection (a):

(1) any person whose only clients in this state are:

(A) federal covered investment advisers, investment advisers registered under this
chapter, or broker-dealers registered under this chapter;

deleted text begin (B) institutional investors;
deleted text end

deleted text begin (C) accredited investors;
deleted text end

deleted text begin (D) deleted text end new text begin (B) new text end bona fide preexisting clients whose principal places of residence are not in
this state if the investment adviser is registered under the securities act of the state in
which the clients maintain principal places of residence; or

deleted text begin (E) deleted text end new text begin (C) new text end any other client exempted by rule adopted or order issued under this chapter;

(2) a person without a place of business in this state if the person has had, during the
preceding 12 months, not more than five clients that are resident in this state in addition
to those specified under paragraph (1); deleted text begin or
deleted text end

new text begin (3) A private fund advisor, subject to the additional requirements of subsection (c), if
the private fund adviser satisfies each of the following conditions:
new text end

new text begin (i) neither the private fund adviser nor any of its advisory affiliates are subject
to a disqualification as described in Rule 262 of SEC Regulation A, Code of Federal
Regulations, title 17, section 230.262;
new text end

new text begin (ii) the private fund adviser files with the state each report and amendment thereto
that an exempt reporting adviser is required to file with the Securities and Exchange
Commission pursuant to SEC Rule 204-4, Code of Federal Regulations, title 17, section
275.204-4; or
new text end

deleted text begin (3) deleted text end new text begin (4) new text end any other person exempted by rule adopted or order issued under this chapter.

(c) new text begin new text begin Additional requirements for private fund advisers to certain 3(c)(1) funds.
new text end In order to qualify for the exemption described in subsection (b)(3), a private fund adviser
who advises at least one 3(c)(1) fund that is not a venture capital fund shall, in addition to
satisfying each of the conditions specified in subsection (b)(3), comply with the following
requirements:
new text end

new text begin (1) The private fund adviser shall advise only those 3(c)(1) funds, other than venture
capital funds, whose outstanding securities, other than short-term paper, are beneficially
owned entirely by persons who, after deducting the value of the primary residence from
the person's net worth, would each meet the definition of a qualified client in SEC Rule
205-3, Code of Federal Regulations, title 17, section 275.205-3, at the time the securities
are purchased from the issuer;
new text end

new text begin (2) At the time of purchase, the private fund adviser shall disclose the following in
writing to each beneficial owner of a 3(c)(1) fund that is not a venture capital fund:
new text end

new text begin (i) all services, if any, to be provided to individual beneficial owners;
new text end

new text begin (ii) all duties, if any, the investment adviser owes to the beneficial owners; and
new text end

new text begin (iii) any other material information affecting the rights or responsibilities of the
beneficial owners; and
new text end

new text begin (3) The private fund adviser shall obtain on an annual basis audited financial
statements of each 3(c)(1) fund that is not a venture capital fund and shall deliver a copy
of such audited financial statements to each beneficial owner of the fund.
new text end

new text begin (d) Federal covered investment advisers. If a private fund adviser is registered
with the Securities and Exchange Commission, the adviser shall not be eligible for the
private fund adviser exemption under paragraph (b), clause (3), and shall comply with
the state notice filing requirements applicable to federal covered investment advisers
in section 80A.58.
new text end

new text begin (e) Investment adviser representatives. A person is exempt from the registration
requirements of section 80A.58, paragraph (a), if he or she is employed by or associated
with an investment adviser that is exempt from registration in this state pursuant to the
private fund adviser exemption, under paragraph (b), clause (3), and does not otherwise
engage in activities that would require registration as an investment adviser representative.
new text end

new text begin (f) Electronic filings. The report filings described in subsection (b)(3)(ii) shall be
made electronically through the IARD. A report shall be deemed filed when the report
and the fee required by sections 80A.60 and 80A.65 are filed and accepted by the IARD
on the state's behalf.
new text end

new text begin (g) Transition. An investment adviser who becomes ineligible for the exemption
provided by this section must comply with all applicable laws and rules requiring
registration or notice filing within 90 days from the date of the investment adviser's
eligibility for this exemption ceases.
new text end

new text begin (h) Grandfathering for investment advisers to 3(c)(1) funds with nonqualified
clients. An investment adviser to a 3(c)(1) fund (other than a venture capital fund) that
has one or more beneficial owners who are not qualified clients as described in paragraph
(c), clause (1), is eligible for the exemption contained in paragraph (b), clause (3), if the
following conditions are satisfied:
new text end

new text begin (1) the subject fund existed prior to the effective date of this legislation;
new text end

new text begin (2) as of the effective date of this legislation, the subject fund ceases to accept
beneficial owners who are not qualified clients, as described in paragraph (c), clause (1);
new text end

new text begin (3) the investment adviser discloses in writing the information described in
paragraph (c), clause (2), to all beneficial owners of the fund; and
new text end

new text begin (4) as of the effective date of this legislation, the investment adviser delivers audited
financial statements as required by paragraph (c), clause (3).
new text end

new text begin (i) new text end Limits on employment or association. It is unlawful for an investment adviser,
directly or indirectly, to employ or associate with an individual to engage in an activity
related to investment advice in this state if the registration of the individual is suspended
or revoked or the individual is barred from employment or association with an investment
adviser, federal covered investment adviser, or broker-dealer by an order under this
chapter, the Securities and Exchange Commission, or a self-regulatory organization,
unless the investment adviser did not know, and in the exercise of reasonable care could
not have known, of the suspension, revocation, or bar. Upon request from the investment
adviser and for good cause, the administrator, by order, may waive, in whole or in part, the
application of the prohibitions of this subsection to the investment adviser.

Sec. 4.

Minnesota Statutes 2012, section 80A.61, is amended to read:

80A.61 SECTION 406; REGISTRATION BY BROKER-DEALER, AGENT,
deleted text begin AND deleted text end new text begin FUNDING PORTAL, new text end INVESTMENT ADVISER new text begin , AND INVESTMENT
ADVISER REPRESENTATIVE new text end .

(a) Application for initial registration new text begin by broker-dealer, agent, or investment
adviser new text end . A person shall register as a broker-dealer, agent, or investment adviser by filing
an application and a consent to service of process complying with section 80A.88, and
paying the fee specified in section 80A.65 and any reasonable fees charged by the designee
of the administrator for processing the filing. The application must contain:

(1) the information or record required for the filing of a uniform application; and

(2) upon request by the administrator, any other financial or other information or
record that the administrator determines is appropriate.

(b) Amendment. If the information or record contained in an application filed under
subsection (a) is or becomes inaccurate or incomplete in a material respect, the registrant
shall promptly file a correcting amendment.

(c) Effectiveness of registration. If an order is not in effect and a proceeding is not
pending under section 80A.67, registration becomes effective at noon on the 45th day after
a completed application is filed, unless the registration is denied. A rule adopted or order
issued under this chapter may set an earlier effective date or may defer the effective date
until noon on the 45th day after the filing of any amendment completing the application.

(d) Registration renewal. A registration is effective until midnight on December
31 of the year for which the application for registration is filed. Unless an order is in
effect under section 80A.67, a registration may be automatically renewed each year by
filing such records as are required by rule adopted or order issued under this chapter, by
paying the fee specified in section 80A.65, and by paying costs charged by the designee of
the administrator for processing the filings.

(e) Additional conditions or waivers. A rule adopted or order issued under this
chapter may impose such other conditions, not inconsistent with the National Securities
Markets Improvement Act of 1996. An order issued under this chapter may waive, in
whole or in part, specific requirements in connection with registration as are in the public
interest and for the protection of investors.

new text begin (f) A funding portal that has its principal place of business in the state of Minnesota
shall register with the state of Minnesota by filing with the administrator a copy of the
information or record required for the filing of an application for registration as a funding
portal in the manner established by the Securities and Exchange Commission and/or the
Financial Institutions Regulatory Authority (FINRA), along with any rule adopted or
order issued, and any amendments thereto.
new text end

new text begin (g) Application for investment adviser representative registration.
new text end

new text begin (1) The application for initial registration as an investment adviser representative
pursuant to section 80A.58 is made by completing Form U-4 (Uniform Application for
Securities Industry Registration or Transfer) in accordance with the form instructions
and by filing the form U-4 with the IARD. The application for initial registration must
also include the following:
new text end

new text begin (i) proof of compliance by the investment adviser representative with the
examination requirements of:
new text end

new text begin (A) the Uniform Investment Adviser Law Examination (Series 65); or
new text end

new text begin (B) the General Securities Representative Examination (Series 7) and the Uniform
Combined State Law Examination (Series 66);
new text end

new text begin (ii) any other information the administrator may reasonably require.
new text end

new text begin (2) The application for the annual renewal registration as an investment adviser
representative shall be filed with the IARD.
new text end

new text begin (3)(i) The investment adviser representative is under a continuing obligation to
update information required by Form U-4 as changes occur.
new text end

new text begin (ii) An investment adviser representative and the investment adviser must file
promptly with the IARD any amendments to the representative's Form U-4; and
new text end

new text begin (iii) An amendment will be considered to be filed promptly if the amendment is filed
within 30 days of the event that requires the filing of the amendment.
new text end

new text begin (4) An application for initial or renewal of registration is not considered filed for
purposes of section 80A.58 until the required fee and all required submissions have been
received by the administrator.
new text end

new text begin (5) The application for withdrawal of registration as an investment adviser
representative pursuant to section 80A.58 shall be completed by following the instructions
on Form U-5 (Uniform Termination Notice for Securities Industry Registration) and filed
upon Form U-5 with the IARD.
new text end

Sec. 5.

Minnesota Statutes 2012, section 80A.66, is amended to read:

80A.66 SECTION 411; POSTREGISTRATION REQUIREMENTS.

(a) Financial requirements. Subject to Section 15(h) of the Securities Exchange
Act of 1934 (15 U.S.C. Section 78o(h)) or Section 222 of the Investment Advisers Act
of 1940 (15 U.S.C. Section 80b-22), a rule adopted or order issued under this chapter
may establish minimum financial requirements for broker-dealers registered or required
to be registered under this chapter and investment advisers registered or required to be
registered under this chapter.

(b) Financial reports. Subject to Section 15(h) of the Securities Exchange Act of
1934 (15 U.S.C. Section 78o(h)) or Section 222(b) of the Investment Advisers Act of 1940
(15 U.S.C. Section 80b-22), a broker-dealer registered or required to be registered under
this chapter and an investment adviser registered or required to be registered under this
chapter shall file such financial reports as are required by a rule adopted or order issued
under this chapter. If the information contained in a record filed under this subsection is or
becomes inaccurate or incomplete in a material respect, the registrant shall promptly file
a correcting amendment.

(c) Record keeping. Subject to Section 15(h) of the Securities Exchange Act of
1934 (15 U.S.C. Section 78o(h)) or Section 222 of the Investment Advisers Act of 1940
(15 U.S.C. Section 80b-22):

(1) a broker-dealer registered or required to be registered under this chapter and an
investment adviser registered or required to be registered under this chapter shall make
and maintain the accounts, correspondence, memoranda, papers, books, and other records
required by rule adopted or order issued under this chapter;

(2) broker-dealer records required to be maintained under paragraph (1) may be
maintained in any form of data storage acceptable under Section 17(a) of the Securities
Exchange Act of 1934 (15 U.S.C. Section 78q(a)) if they are readily accessible to the
administrator; and

(3) Investment adviser records required to be maintained under paragraph new text begin (d) new text end (1)
may be maintained in any form of data storage required by rule adopted or order issued
under this chapter.

new text begin (d) Records and reports of private funds.
new text end

new text begin (1) In general. An investment adviser to a private fund shall maintain such records
of, and file with the administrator such reports and amendments thereto, that an exempt
reporting adviser is required to file with the Securities and Exchange Commission pursuant
to SEC Rule 204-4, Code of Federal Regulations, title 17, section 275.204-4.
new text end

new text begin (2) Treatment of records. The records and reports of any private fund to which
an investment adviser provides investment advice shall be deemed to be the records and
reports of the investment adviser.
new text end

new text begin (3) Required information. The records and reports required to be maintained
by an investment adviser, which are subject to inspection by a representative of the
administrator at any time, shall include for each private fund advised by the investment
adviser, a description of:
new text end

new text begin (A) the amount of assets under management;
new text end

new text begin (B) the use of leverage, including off-balance-sheet leverage, as to the assets under
management;
new text end

new text begin (C) counterparty credit risk exposure;
new text end

new text begin (D) trading and investment positions;
new text end

new text begin (E) valuation policies and practices of the fund;
new text end

new text begin (F) types of assets held;
new text end

new text begin (G) side arrangements or side letters, whereby certain investors in a fund obtain
more favorable rights or entitlements than other investors;
new text end

new text begin (H) trading practices; and
new text end

new text begin (I) such other information as the administrator determines is necessary and
appropriate in the public interest and for the protection of investors, which may include
the establishment of different reporting requirements for different classes of fund advisers,
based on the type or size of the private fund being advised.
new text end

new text begin (4) Filing of records. A rule or order under this chapter may require each investment
adviser to a private fund to file reports containing such information as the administrator
deems necessary and appropriate in the public interest and for the protection of investors.
new text end

deleted text begin (d) deleted text end new text begin (e) new text end Audits or inspections. The records of a broker-dealer registered or required
to be registered under this chapter and of an investment adviser registered or required to
be registered under this chapter new text begin , including the records of a private fund described in
paragraph (d) and the records of investment advisers to private funds, new text end are subject to such
reasonable periodic, special, or other audits or inspections by a representative of the
administrator, within or without this state, as the administrator considers necessary or
appropriate in the public interest and for the protection of investors. An audit or inspection
may be made at any time and without prior notice. The administrator may copy, and
remove for audit or inspection copies of, all records the administrator reasonably considers
necessary or appropriate to conduct the audit or inspection. The administrator may assess
a reasonable charge for conducting an audit or inspection under this subsection.

deleted text begin (e) deleted text end new text begin (f) new text end Custody and discretionary authority bond or insurance. Subject to Section
15(h) of the Securities Exchange Act of 1934 (15 U.S.C. Section 78o(h)) or Section 222 of
the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-22), a rule adopted or order
issued under this chapter may require a broker-dealer or investment adviser that has custody
of or discretionary authority over funds or securities of a customer or client to obtain
insurance or post a bond or other satisfactory form of security in an amount deleted text begin not to exceed
deleted text end 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
requirements of the insurance, bond, or other satisfactory form of security. Insurance or a
bond or other satisfactory form of security may not be required of a broker-dealer registered
under this chapter whose net capital exceeds, or of an investment adviser registered under
this chapter whose minimum financial requirements exceed, the amounts required by rule
or order under this chapter. The insurance, bond, or other satisfactory form of security
must permit an action by a person to enforce any liability on the insurance, bond, or other
satisfactory form of security if instituted within the time limitations in section 80A.76(j)(2).

deleted text begin (f) deleted text end new text begin (g) new text end Requirements for custody. Subject to Section 15(h) of the Securities
Exchange Act of 1934 (15 U.S.C. Section 78o(h)) or Section 222 of the Investment
Advisers Act of 1940 (15 U.S.C. Section 80b-22), an agent may not have custody of
funds or securities of a customer except under the supervision of a broker-dealer and an
investment adviser representative may not have custody of funds or securities of a client
except under the supervision of an investment adviser or a federal covered investment
adviser. A rule adopted or order issued under this chapter may prohibit, limit, or impose
conditions on a broker-dealer regarding custody of funds or securities of a customer and
on an investment adviser regarding custody of securities or funds of a client.

deleted text begin (g) deleted text end new text begin (h) new text end Investment adviser brochure rule. With respect to an investment adviser
registered or required to be registered under this chapter, a rule adopted or order
issued under this chapter may require that information or other record be furnished or
disseminated to clients or prospective clients in this state as necessary or appropriate in the
public interest and for the protection of investors and advisory clients.

deleted text begin (h) deleted text end new text begin (i) new text end Continuing education. A rule adopted or order issued under this
chapter may require an individual registered under section 80A.57 to participate in a
continuing education program approved by the Securities and Exchange Commission and
administered by a self-regulatory organization.

Sec. 6.

Minnesota Statutes 2012, section 80C.08, is amended by adding a subdivision
to read:

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
public offering statement for a period of 120 days the commissioner may declare by
order the application withdrawn.
new text end