Chapter 53 Oregon Laws 1999

Session Law

AN ACT

SB 217

Relating to securities; creating new provisions; amending ORS 59.015, 59.165, 59.175, 59.255, 59.991 and 59.995; and declaring an emergency.

Be It Enacted by the People of the State of Oregon:

SECTION 1. ORS 59.015 is amended to read:

59.015. As used in the Oregon Securities Law, unless the context otherwise requires:

(1) "Broker-dealer" means a person who engages, all or part of the time, in effecting transactions in securities for the account of others or for the person's own account. "Broker-dealer" does not include:

(a) An issuer effecting sales in its own securities;

(b) The following institutions:

(A) A financial institution or trust company, as defined in ORS 706.008; or

(B) A bank holding company, as defined in ORS 706.008, holding an institution described in subparagraph (A) of this paragraph; a savings and loan holding company as defined in section 408 of the National Housing Act, 12 U.S.C. section 1730a, holding an association described in subparagraph (A) of this paragraph; the subsidiaries and affiliates of the bank holding company or savings and loan holding company; or subsidiaries and affiliates of institutions described in subparagraph (A) of this paragraph, if the appropriate statutory regulatory authority is exercising control over, or is regulating or supervising the person in the sale of securities in accord with the purposes of the Oregon Securities Law;

(c) A person who has no place of business in this state effecting transactions in this state exclusively with broker-dealers;

(d) A person effecting sales exempted by ORS 59.035;

(e) A salesperson, as defined in this section;

(f) A person effecting sales of securities owned by the person registered for sale pursuant to ORS 59.065;

(g) A person effecting sales of securities exempted by ORS 59.025 (7);

(h) A person licensed as a mortgage banker or a mortgage broker under ORS 59.840 to 59.965 when effecting sales of securities involving real estate paper registered for sale pursuant to ORS 59.065; or

(i) A person designated by rule or order by the director.

(2) "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise.

(3) "Director" means the Director of the Department of Consumer and Business Services.

(4) "Federal covered investment adviser" means a person who is registered as an investment adviser pursuant to section 203 of the Investment Advisers Act of 1940, as amended.

(5) "Federal covered security" means any security that is a covered security under section 18 of the Securities Act of 1933, as amended, and for which such Act provides that the director may require filing of a notice and payment of a fee.

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

(7) "Guaranteed" means guaranteed as to payment of principal, interest or dividends.

[(8) "Investment adviser representative" means any partner, officer, director or person occupying a similar status or performing a similar function, or other individual, except clerical or ministerial personnel:]

[(a)(A) Who is employed by or associated with a state investment adviser that is licensed or required to be licensed in this state; or]

[(B) Who has a place of business in this state and is employed by or associated with a federal covered investment adviser; and]

[(b) Who does any of the following:]

[(A) Makes any recommendations or otherwise renders advice regarding securities;]

[(B) Manages accounts or portfolios of clients;]

[(C) Determines which recommendation or advice regarding securities should be given;]

[(D) Solicits, offers or negotiates for the sale of or sells investment advisory services; or]

[(E) Supervises employees acting under this paragraph.]

(8)(a) "Investment adviser representative" means any partner, officer, director or person occupying a similar status or performing a similar function, or other individual, except clerical or ministerial personnel, who is employed by or associated with:

(A) A state investment adviser that is licensed or required to be licensed in this state and who does any of the following:

(i) Makes any recommendations or otherwise renders advice regarding securities;

(ii) Manages accounts or portfolios of clients;

(iii) Determines which recommendation or advice regarding securities should be given;

(iv) Solicits, offers or negotiates for the sale of or sells investment advisory services; or

(v) Supervises employees acting under this subparagraph; or

(B) A federal covered investment adviser, subject to the limitations of section 203A of the Investment Advisers Act of 1940, as amended, as the director may designate by rule or order.

(b) "Investment adviser representative" does not include a person designated by rule or order of the director.

(9) "Issuer" means a person who issues, proposes to issue or has issued a security and includes an issuer to be formed. With respect to certificates of deposit, voting-trust certificates or collateral-trust certificates, or with respect to certificates of interest or shares in an unincorporated investment trust not having a board of directors or persons performing similar functions or of the fixed, restricted management or unit type, the "issuer" is the person or persons performing the acts and assuming the duties of depositor or manager pursuant to the provisions of the trust or other instrument or agreement under which the security is issued.

(10) "License" means a license as provided under the Oregon Securities Law.

(11) "Mortgage banker" means a mortgage banker as defined in ORS 59.840.

(12) "Mortgage broker" means a mortgage broker as defined in ORS 59.840.

(13) "Offer" or "offer to sell" includes every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security for value. Every sale or offer of a warrant or right to purchase or subscribe to another security of the same or another issuer, as well as every sale or offer of a security which gives the holder a present or future right or privilege to convert into another security of the same or another issuer, is considered to include an offer of the other security.

(14) "Person" includes an individual, a joint venture, a partnership, a cooperative, a limited liability company, an association, a joint stock company, a corporation, a trust, an unincorporated organization or a government or political subdivision of a government.

(15) "Real estate paper" means any obligation secured or purportedly secured by an interest in real property. Real estate paper includes, but is not limited to, mortgage-backed securities, collateralized mortgage obligations, and real estate mortgage investment conduits.

(16) "Registered" means registered as provided in the Oregon Securities Law.

(17)(a) "Sale" or "sell" includes every contract of sale of, contract to sell, or disposition of, a security or interest in a security for value. Any security given or delivered with, or as a bonus on account of, a purchase of securities or any other thing shall constitute a part of the subject of the purchase and shall have been offered and sold for value. A gift of assessable stock by or for any issuer or promoter shall constitute a sale.

(b) "Sale" and "sell" do not include:

(A) A bona fide pledge or loan of securities;

(B) A bona fide security dividend, whether the corporation distributing the dividend is the issuer of the security or not, if nothing of value is given by the recipients for the dividend other than payments in connection with the elimination of fractional shares; or

(C) An act incident to a judicially approved reorganization in which a security is issued in exchange for one or more outstanding securities, claims or property interests, or partly in such exchange and partly for cash.

(18)(a) "Salesperson" means:

(A) A person, other than a broker-dealer, who represents or purports to represent a broker-dealer, issuer or owner of securities in effecting or attempting to effect in any manner transactions in securities.

(B) A person, other than a person licensed as a mortgage banker or mortgage broker under ORS 59.840 to 59.965, who represents or purports to represent the issuer, owner, or mortgage banker or mortgage broker licensed under ORS 59.840 to 59.965 in effecting sales of securities or involving real estate paper registered for sale pursuant to ORS 59.065.

(b) "Salesperson" does not include:

(A) A person who represents an issuer in effecting sales in a security exempted by ORS 59.025;

(B) A person who represents an issuer in effecting sales exempted by ORS 59.035;

(C) A person who represents an issuer in effecting sales with existing partners or directors of the issuer, if no commission or other remuneration is paid or given directly or indirectly for soliciting any person in this state;

(D) An employee of an institution or organization described in subsection (1)(b) of this section to the extent the employee is not a dual employee of the institution and a broker-dealer;

(E) A person effecting transactions in this state limited to those transactions described in section 15(h)(2) and (3) of the Securities Exchange Act of 1934, as amended; or

(F) A person designated by rule or order by the director.

(c) A person who is a partner, director or officer of a broker-dealer, issuer or owner of securities, or a person who occupies a similar status or performing similar functions, is a "salesperson" only if the person otherwise comes within this definition.

(19)(a) "Security" means a note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in a pension plan or profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, certificate of interest or participation in an oil, gas, or mining title or lease or in payments out of production under such title or lease, real estate paper sold by a broker-dealer, mortgage banker, mortgage broker or a person described in subsection (1)(b) of this section to persons other than persons enumerated in ORS 59.035 (4), or, in general, any interest or instrument commonly known as a "security," or any certificate of interest or participation in, temporary or interim certificates for, receipt for, guarantee of, or warrant or right to subscribe to or purchase any of the foregoing.

(b) "Security" does not include:

(A) 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 some other specified period;

(B) A beneficial interest in a voluntary inter vivos trust unless the trust is created solely for the purpose of voting or is part of an attempt to evade the provisions of ORS 59.005 to 59.370; or

(20)(a) "State investment adviser" means a person who, for compensation:

(A) Engages all or part of the time of the person, in this state, in the business of advising others, either directly or by mail or through publication or writing, as to the value of securities or as to the advisability of investing in, purchasing or selling securities;

(B) Engages all or part of the time of the person, in this state, in the business of managing an investment or trading account in securities for other persons; or

(b) "State investment adviser" does not include:

(A) An investment adviser representative;

(B) An institution or organization described in subsection (1)(b) of this section;

(C) A licensed broker-dealer whose performance of investment advisory services is solely incidental to the conduct of business as a broker-dealer and who receives no special compensation for such services;

(D) A salesperson licensed to a broker-dealer whose performance of investment advisory services is solely incidental to that person's activities as a salesperson and who receives no special compensation for such services;

(E) A publisher of or contributor to a bona fide newspaper, newsmagazine, investment manual or service, or business or financial publication of general, regular and paid circulation;

(F) A person whose only clients are federal covered investment advisers, state investment advisers, broker-dealers, mortgage bankers, mortgage brokers, banks, savings institutions or trust companies, insurance companies, investment companies as defined in the Investment Company Act of 1940, as amended, pension or profit-sharing trusts, or other financial institutions or institutional buyers, whether acting for themselves or as trustees;

(G) A duly licensed lawyer, engineer or accountant whose performance of investment advisory services is solely incidental to the practice of the profession;

(H) A person whose advice, analyses or reports relate only to securities exempted by ORS 59.025 (1);

(I) A federal covered investment adviser in compliance with ORS 59.165 (7);

(J) A person, advising others, that has no place of business in this state and during the preceding 12-month period has had fewer than six clients, other than those persons included in subparagraph (F) of this paragraph, who are residents of this state; or

(K) Such other persons as the director may by rule or order designate.

SECTION 2. ORS 59.165 is amended to read:

59.165. (1) It is unlawful for any person to transact business in this state as a broker-dealer or salesperson unless the person is licensed under the Oregon Securities Law.

(2) No broker-dealer or state investment adviser shall be licensed in this state unless the broker-dealer or state investment adviser has at least one salesperson licensed in this state.

(3) It is unlawful for a broker-dealer, state investment adviser, mortgage banker, mortgage broker or issuer or owner of securities to employ a salesperson or investment adviser representative to act in this state unless the salesperson or investment adviser representative is licensed under the Oregon Securities Law to the broker-dealer, state investment adviser, mortgage banker, mortgage broker or issuer or owner of securities. Only a natural person may be licensed as a salesperson or investment adviser representative.

(4) It is unlawful for a federal covered investment adviser to employ an investment adviser representative who has a place of business in this state to act in this state unless the investment adviser representative is licensed under the Oregon Securities Law to the federal covered investment adviser. Only a natural person may be licensed as an investment adviser representative.

(5) No person:

(a) May be licensed as a salesperson or investment adviser representative for more than one broker-dealer, federal covered investment adviser, state investment adviser, mortgage banker, mortgage broker, issuer or owner of securities at the same time, except as may be allowed by rule or order of the Director of the Department of Consumer and Business Services.

(b) May be licensed as a salesperson or investment adviser representative unless the person is employed by a broker-dealer, federal covered investment adviser, state investment adviser, mortgage banker, mortgage broker, or issuer or owner of securities.

(6) It is unlawful for any person to transact business in this state as a state investment adviser unless the person:

(a) Is licensed as such under the Oregon Securities Law; or

(b) Is licensed as a broker-dealer without the imposition of a condition under ORS 59.215 (4).

(7) Except for federal covered investment advisers whose activities are described by ORS 59.015 (20)(b) and licensed broker-dealers transacting business as federal covered investment advisers in this state, it is unlawful for any federal covered investment adviser to conduct an advisory business in this state unless such person makes notice filings with the director of such documents filed with the Securities and Exchange Commission as the director may by rule or otherwise require and pays the fee, including the notice filing fee, specified in ORS 59.175. The director may issue an order suspending the conduct of an investment advisory business in this state if the director finds that there is a failure to comply with any requirement under this section.

(8)(a) Notwithstanding any other provision of this section, until October 10, 1999, the director may require the licensing as a state investment adviser of any person, otherwise meeting the definition of federal covered investment adviser, who has failed to promptly pay the fees required by ORS 59.175 [(7)(g)] (8)(g) and (h) after being notified in writing by the director of the nonpayment or underpayment of such fees. A person shall be considered to have promptly paid such fees if the fees are remitted to the director within 15 days following the delivery of written notification by the director.

(b) It is unlawful for any federal covered investment adviser to conduct an investment advisory business in this state if such person fails to obtain the license required by the director under paragraph (a) of this subsection.

(9) Notwithstanding any other provision of this section, an individual performing the activities of an investment adviser representative and who would otherwise be required to be licensed as an investment adviser representative shall not be required to be separately licensed as an investment adviser representative if:

(a) The individual is licensed to a licensed broker-dealer, the broker-dealer is transacting business as a federal covered investment adviser or a state investment adviser under the provisions of subsection (6)(b) of this section and the person is performing investment adviser activities on behalf of the broker-dealer; or

(b) The individual is licensed to a licensed broker-dealer and the broker-dealer directly receives all compensation otherwise earned by the person in connection with the investment advisory activities being transacted in this state. The broker-dealer may or may not further distribute any or all compensation received to the licensed salesperson.

SECTION 3. ORS 59.175 is amended to read:

59.175. (1) The Director of the Department of Consumer and Business Services by rule shall establish procedures for notice filings required of federal covered investment advisers as well as procedures for licensing broker-dealers, state investment advisers, investment adviser representatives and salespersons. The director may coordinate notice filings or licensing with any national registration, licensing or notice filing system.

(2) The director may require an applicant for a license as a broker-dealer, state investment adviser or federal covered investment adviser for whom a license is required under ORS 59.165 (8), including the applicant's partners, directors, officers or any person occupying a similar status or performing similar functions, and any person directly or indirectly controlling such applicant and a person for whom application for a license as a salesperson or investment adviser representative is made, to pass an examination on such person's knowledge and understanding of the Oregon Securities Law and the securities business. The director may establish by rule a fee for the examination.

(3) The director may make such further examination of the applicant and the applicant's affairs as the director deems advisable and may require by rule or order that the applicant publish an announcement of the application in such manner as the director may specify.

(4)(a) Except as otherwise provided in paragraph (b) or (c) of this subsection, every applicant for a license as a broker-dealer or state investment adviser shall file with the director a corporate surety bond or irrevocable letter of credit issued by an insured institution as defined in ORS 706.008 or such other security as the director may approve by rule running to the State of Oregon in a sum to be established by rule of the director, but in no event more than $100,000.

(b) Licensed broker-dealers subject to section 15 of the Securities Exchange Act of 1934, as amended, are not required to comply with paragraph (a) of this subsection, nor are such licensed broker-dealers required to comply with any net capital requirements imposed by the director by rule or otherwise.

(c) A licensed state investment adviser who has its principal place of business in a state other than this state shall be exempt from the requirements of paragraph (a) of this subsection and shall be further exempt from any net capital requirements imposed by the director by rule or otherwise, provided that any such licensed state investment adviser is registered or licensed as a state investment adviser in the state where it maintains its principal place of business and is in compliance with such state's bonding or net capital requirements.

(5) If the application, surety bond, irrevocable letter of credit or other security and fees are in order and the director is satisfied that the application should not be denied upon one or more of the grounds specified in ORS 59.205 to 59.225, the director shall license the broker-dealer, state investment adviser, salesperson or investment adviser representative.

(6) A licensee under ORS 59.165 shall amend the license application when there are material changes in the information contained in the original application.

(7) An applicant for or a person holding a license issued under ORS 59.005 to 59.370 may file with the director a trade name, as defined in ORS 647.005, or an assumed business name, as defined in ORS 648.005. The trade name or assumed business name shall be filed in a form and manner established by rule by the director. If the application is complete and the fee set forth in subsection (8) of this section is paid, the director shall issue an order authorizing the licensee to operate under the trade name or assumed business name. The order shall remain in effect until canceled, suspended or revoked.

[(7)] (8) The director shall charge and collect for:

(a) An application for a license as a broker-dealer or state investment adviser, a fee of $100;

(b) An application to renew a license as a broker-dealer or state investment adviser, a fee of $50;

(d) An application to renew a license as a salesperson, a fee of $15;

(e) An application for a license as an investment adviser representative, a fee of $15;

(f) An application to renew a license as an investment adviser representative, a fee of $15;

(g) A notice filing for a federal covered investment adviser, a fee of $100; [and]

(h) A notice filing renewal for a federal covered investment adviser, a fee of $50[.]; and

(i) A filing for use of a trade name or an assumed business name, a fee of $50.

[(8)] (9) The fees under this section are not refundable.

SECTION 4. ORS 59.255 is amended to read:

59.255. (1) Whenever it appears to the Director of the Department of Consumer and Business Services that a person has engaged or is about to engage in an act or practice constituting a violation of any provision of the Oregon Securities Law or any rule or order of the director, the director may bring suit in the name and on behalf of the State of Oregon in the circuit court of any county of this state to enjoin the acts or practices and to enforce compliance with the Oregon Securities Law or such rule or order. Upon a proper showing, a permanent or temporary injunction, restraining order or writ of mandamus shall be granted. The court may fine the person against whom the order is entered not more than $5,000 for each violation, which shall be entered as a judgment and paid to the General Fund of the State Treasury. Each violation is a separate offense. In the case of a continuing violation, each day's continuance is a separate violation, but the maximum penalty for any continuing violation shall not exceed $20,000. If the court finds that the defendant has violated any provision of the Oregon Securities Law or any such rule or order, the court may appoint a receiver, who may be the director, for the defendant or the defendant's assets. The court may not require the director to post a bond. The court may award reasonable attorney fees to the director if the director prevails in an action under this section. The court may award reasonable attorney fees to a defendant who prevails in an action under this section if the court determines that the director had no objectively reasonable basis for asserting the claim or no reasonable basis for appealing an adverse decision of the trial court.

(2) The director may include in any action authorized by subsection (1) of this section:

(a) A claim for restitution or damages under ORS 59.115 or 59.127, on behalf of the persons injured by the act or practice constituting the subject matter of the action. The court shall have jurisdiction to award appropriate relief to such persons, if the court finds that enforcement of the rights of such persons by private civil action, whether by class action or otherwise, would be so burdensome or expensive as to be impractical; or

(b) A claim for disgorgement of illegal gains or profits derived. Any recovery under this paragraph shall be turned over to the General Fund of the State Treasury unless the court requires other disposition.

(3) The provisions of this section shall not apply to a failure to file a notice and pay a fee pursuant to ORS 59.049 (1), (2) or (3), nor to a failure to file a notice and pay a fee pursuant to ORS 59.165 (7), nor to a failure to pay a fee pursuant to ORS 59.175 [(7)] (8), nor to a violation of any rule adopted by the director pursuant to ORS 59.049 (1), (2) or (3), 59.165 (7) or 59.175 [(7)] (8).

SECTION 5. ORS 59.991 is amended to read:

59.991. (1) Except as provided in subsection (3) of this section, violation of any provision of ORS 59.005 to 59.451, 59.660 to 59.830, 59.991 and 59.995 or any rule adopted by the Director of the Department of Consumer and Business Services under ORS 59.005 to 59.451, 59.660 to 59.830, 59.991 and 59.995, except ORS 59.315 (2), 59.660 to 59.700 or 59.810, is a Class B felony.

(2) Violation of ORS 59.315 (2), 59.660 to 59.700 or 59.810 is a Class A misdemeanor.

(3) This section does not apply to a failure to file a notice and pay a fee under ORS 59.049 (1), (2) or (3), nor to a failure to file a notice and pay a fee pursuant to ORS 59.165 (7), nor to a failure to pay a fee pursuant to ORS 59.175 [(7)] (8), nor to a violation of any rule adopted by the director under ORS 59.049 (1), (2) or (3), 59.165 (7) or 59.175 [(7)] (8).

SECTION 6. ORS 59.995 is amended to read:

59.995. (1) In addition to all other penalties and enforcement provisions provided by law, any person who violates or who procures, aids or abets in the violation of ORS 59.005 to 59.451, 59.660 to 59.830, 59.991 and 59.995 or any rule or order of the Director of the Department of Consumer and Business Services shall be subject to a penalty of not more than $5,000 for every violation, which shall be paid to the General Fund of the State Treasury.

(2) Every violation is a separate offense and, in the case of a continuing violation, each day's continuance is a separate violation, but the maximum penalty for any continuing violation shall not exceed $20,000.

(3) Civil penalties under this section shall be imposed as provided in ORS 183.090.

(4) This section does not apply to a failure to file a notice and pay a fee pursuant to ORS 59.049 (1), (2) or (3), nor to a failure to file a notice and pay a fee pursuant to ORS 59.165 (7), nor to a failure to pay a fee pursuant to ORS 59.175 [(7)] (8), nor to a violation of any rule adopted by the director under ORS 59.049 (1), (2) or (3), 59.165 (7) or 59.175 [(7)] (8).

SECTION 7. Section 8 of this 1999 Act is added to and made a part of ORS 59.005 to 59.370.

SECTION 8. References in ORS 59.005 to 59.370, 59.991 and 59.995 to federal statutes or federal regulations shall be construed to refer to those statutes or regulations as they are in effect on the effective date of this 1999 Act.

SECTION 9. This 1999 Act being necessary for the immediate preservation of the public peace, health and safety, an emergency is declared to exist, and this 1999 Act takes effect on its passage.

Approved by the Governor April 19, 1999

Filed in the office of Secretary of State April 19, 1999

Effective date April 19, 1999

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