REPORT TITLE:
Uniform Securities Act


DESCRIPTION:
Amends chapter 485 to clarify and expand powers of the
Commissioner and allowing better and more flexible enforcement of
the securities law, minimize interruptions in business by
authorizing registered brokers or investment advisers to file
applications for registration on behalf of successor entities,
and provide a reciprocal exemption for Canadian securities
dealers servicing Canadian tourists temporarily on vacation in
Hawaii.  (HB2481 HD1)

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


                   A  BILL  FOR  AN  ACT

RELATING TO THE UNIFORM SECURITIES ACT.



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

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 6 adviser representative, may be withdrawn without prejudice by the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

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

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

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

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

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

 
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 1      (1)  Any isolated nonissuer transaction, whether effected
 
 2           through a dealer or not;
 
 3      (2)  Any nonissuer distribution of an outstanding security
 
 4           if the manual of Hawaiian securities or any other
 
 5           recognized securities manual contains the names of the
 
 6           issuer's officers and directors, a balance sheet of the
 
 7           issuer as of a date within eighteen months, and a
 
 8           profit and loss statement for either the fiscal year
 
 9           preceding that date or the most recent year of
 
10           operations, or the security has a fixed maturity or a
 
11           fixed interest or dividend provision and there has been
 
12           no default during the current fiscal year or within the
 
13           three preceding fiscal years (or during the existence
 
14           of the issuer and any predecessors if less than three
 
15           years) in the payment of principal, interest, or
 
16           dividends on the security;
 
17      (3)  Any nonissuer transaction effected by or through a
 
18           registered dealer pursuant to an unsolicited order or
 
19           offer to buy;
 
20      (4)  Any transaction between the issuer or other person on
 
21           whose behalf the offering is made and an underwriter,
 
22           or among underwriters;
 

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

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        


 1           or not the offerer or any of the offerees is then
 
 2           present in the State, if all buyers represent that they
 
 3           are purchasing for investment (rather than with a
 
 4           present view to resale) and the seller reasonably
 
 5           accepts their representations as true, and no
 
 6           commission or other remuneration is paid or given
 
 7           directly or indirectly for soliciting any prospective
 
 8           buyer;
 
 9     (10)  Any offer or sale of a preorganization certificate or
 
10           subscription for any security to be issued by any
 
11           person if no commission or other remuneration is paid
 
12           or given directly or indirectly for soliciting any
 
13           prospective subscriber, and the number of subscribers
 
14           does not exceed twenty-five;
 
15     (11)  Any transaction pursuant to an offer to existing
 
16           security holders of the issuer, including persons who
 
17           at the time of the transaction are holders of
 
18           convertible securities, nontransferable warrants, or
 
19           transferable warrants exercisable within ninety days of
 
20           their issuance, if no commission or other remuneration
 
21           (other than a standby commission) is paid or given
 
22           directly or indirectly for soliciting any security
 
23           holder in the State;
 

 
Page 10                                                    2481
                                     H.B. NO.           H.D. 1
                                                        
                                                        


 1     (12)  Any offer (but not a sale) of a security for which
 
 2           registration statements have been filed under both this
 
 3           chapter and the Securities Act of 1933, if no stop
 
 4           order or refusal order is in effect and no public
 
 5           proceeding or examination looking toward the order is
 
 6           pending under either this chapter or the Act;
 
 7     (13)  Any offer or sale by or through a real estate broker or
 
 8           real estate salesperson licensed under the laws of the
 
 9           State, of a security issued on or after July 1, 1961,
 
10           by a corporation organized under the laws of the State,
 
11           the holder of which is entitled solely by reason of the
 
12           holder's ownership thereof, to occupy for dwelling
 
13           purposes, or to a lease which entitles the holder to
 
14           occupy for dwelling purposes a house, or an apartment
 
15           in a building, owned or leased by the corporation,
 
16           subject, however, to section 485-7;
 
17     (14)  Any offer or sale by or through a real estate broker or
 
18           real estate salesperson licensed under the laws of the
 
19           State of an apartment in a condominium project, and a
 
20           rental management contract relating to the apartment,
 
21           including an interest in a general or limited
 
22           partnership formed for the purpose of managing the
 
23           rental of apartments if the rental management contract
 

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

 
 
 
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 1               (iv)   The issuer reasonably believes that all
 
 2                      purchasers are purchasing for investment
 
 3                      purposes and not with the view to, or for
 
 4                      sales in connection with, a distribution of
 
 5                      the security.  Any resale of a security sold
 
 6                      in reliance [of] on this exemption within
 
 7                      twelve months of sale shall be presumed to
 
 8                      be made with a view to distribute and not to
 
 9                      invest, except a resale pursuant to a
 
10                      registration statement effective under
 
11                      section 485-8, or to an accredited investor
 
12                      pursuant to an exemption available under
 
13                      chapter 485;
 
14           (B)  The exemption under this paragraph shall not apply
 
15                to an issuer if the issuer; any affiliated issuer;
 
16                any beneficial owner of ten per cent or more of
 
17                any class of the issuer's equity securities; any
 
18                issuer's predecessor, director, officer, general
 
19                partner, or promoter presently connected in any
 
20                capacity with the issuer; and any underwriter or
 
21                partner, director, or officer of the underwriter
 
22                of the securities to be offered:
 

 
 
 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        


 1                (i)   Within the last five years has filed a
 
 2                      registration statement that is the subject
 
 3                      of a currently effective registration stop
 
 4                      order entered by any state securities
 
 5                      administrator or the United States
 
 6                      Securities and Exchange Commission;
 
 7               (ii)   Within the last five years has been
 
 8                      convicted of any criminal offense in
 
 9                      connection with the offer, purchase, or sale
 
10                      of any security, or involving fraud or
 
11                      deceit;
 
12              (iii)   Is currently subject to any state or federal
 
13                      administrative enforcement order or judgment
 
14                      entered within the last five years, finding
 
15                      fraud or deceit in connection with the
 
16                      purchase or sale of any security; or
 
17               (iv)   Is currently subject to any order, judgment,
 
18                      or decree of any court of competent
 
19                      jurisdiction, entered within the last five
 
20                      years, temporarily, preliminarily, or
 
21                      permanently restraining or enjoining such
 
22                      party from engaging in or continuing to
 

 
 
 
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 1                      engage in any conduct or practice involving
 
 2                      fraud or deceit in connection with the
 
 3                      purchase or sale of any security;
 
 4           (C)  Subparagraph (B) shall not apply if:
 
 5                (i)   The party subject to the disqualification is
 
 6                      licensed or registered to conduct
 
 7                      securities-related business in the state in
 
 8                      which the order, judgment, or decree
 
 9                      creating the disqualification was entered
 
10                      against such party;
 
11               (ii)   Before the first offer under this exemption,
 
12                      the commissioner, or the court or regulatory
 
13                      authority that entered the order, judgment,
 
14                      or decree waives the disqualifications; or
 
15              (iii)   The issuer establishes that the issuer did
 
16                      not know and in the exercise of reasonable
 
17                      care, based on a factual inquiry, could not
 
18                      have known that a disqualification existed
 
19                      under this paragraph;
 
20           (D)  An issuer claiming the exemption under this
 
21                section, within fifteen days after the first sale
 
22                in this State, shall file with the commissioner a
 
23                notice of transaction, a consent to service of
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        


 1                process, a copy of the general announcement as
 
 2                required by section [[485-24.6],] 485-B and a $200
 
 3                filing fee; and
 
 4           (E)  For the purposes of this paragraph, "accredited
 
 5                investor" shall have the same meaning as provided
 
 6                in 17 Code of Federal Regulations section
 
 7                230.501(a)[.];
 
 8           and
 
 9      (17) Any offer or sale of a security effected by a resident
 
10           of Canada who is excluded from the definition of
 
11           "dealer" under section 485-1(3)(E)."
 
12      SECTION 5.  Section 485-14, Hawaii Revised Statutes, is
 
13 amended to read as follows:
 
14      "§485-14  Registration of dealers, investment advisers,
 
15 salespersons, and investment adviser representatives.(a)  It is
 
16 unlawful for any person to transact business in this State as a
 
17 dealer, investment adviser, salesperson, or investment adviser
 
18 representative unless registered under this chapter.  However,
 
19 nothing in this chapter shall prevent the commissioner from
 
20 participating, in whole or in part, in the Central Registration
 
21 Depository system, in cooperation with the National Association
 

 
 
 
 
 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        


 1 of Securities Dealers, Inc., other states, and the United States,
 
 2 to the extent participation is deemed to be in the public
 
 3 interest of this State.
 
 4      (b)  Eligibility for registration as a dealer.  To be
 
 5 eligible for registration as a dealer, an applicant shall have
 
 6 had (or if the applicant is a partnership or corporation have at
 
 7 least one partner, officer, or employee who has) at least one
 
 8 year of experience as a full-time security salesperson or
 
 9 experience as a security salesperson on a part-time basis found
 
10 by the commissioner of securities to be substantially equivalent
 
11 thereto[,]; provided that [the foregoing] this experience
 
12 requirement shall not apply to issuers of securities applying for
 
13 registration as dealers for the sole purpose of issuing and
 
14 selling securities issued by them.
 
15      (c)  Application for registration as a dealer.  An
 
16 application for registration as a dealer [in writing] shall be
 
17 filed in the office of the commissioner in such form as the
 
18 commissioner may prescribe, duly verified by oath, and shall
 
19 state the principal office of the applicant wherever situated,
 
20 and the location of the principal office and branch offices in
 
21 the State, if any, the name and style of doing business, the
 
22 names, residence, and business of principals, copartners,
 
23 officers, and directors, specifying as to each person's capacity
 

 
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 1 and title, the general plan and character of business, the length
 
 2 of time the dealer has been engaged in business and information
 
 3 as to the time, place, and character of experience as a
 
 4 securities salesperson. The commissioner may also require such
 
 5 additional information as to the applicant's previous history,
 
 6 record, and association including the following:
 
 7      (1)  Any injunction or administrative order or conviction of
 
 8           a misdemeanor involving a security or any aspect of the
 
 9           securities business, and any conviction of a felony;
 
10      (2)  The applicant's financial condition and history;
 
11      (3)  Whether the dealer, or any person employed by or
 
12           associated in business with the dealer, is subject to
 
13           any disqualification which would be a basis for denial,
 
14           suspension, or revocation of registration of the dealer
 
15           under section 485-15; and
 
16      (4)  Any other information [as] that the commissioner deems
 
17           necessary to establish the qualifications of the
 
18           applicant.
 
19      There shall be filed with such application an irrevocable
 
20 written consent to the service of process upon the commissioner
 
21 in actions against the dealer in manner and form provided in
 
22 section 485-12.
 

 
 
 
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 1      (d)  Eligibility for registration as an investment adviser.
 
 2 To be eligible for registration under this chapter, an investment
 
 3 adviser shall have complied with the mandatory provisions
 
 4 [mandatory] of this section, and shall take and pass an oral or
 
 5 written examination, or both, prescribed by the commissioner, to
 
 6 test the applicant's knowledge of the securities business;
 
 7 provided that the commissioner may by rule set forth exemptions
 
 8 to the examination requirement.  Every person required to take
 
 9 such an examination at or before the time of the examination,
 
10 shall pay to the commissioner a fee of $250.
 
11      (e)  Registration of investment advisers.  An application
 
12 for registration, duly verified by oath by the applicant, and in
 
13 such form as the commissioner shall prescribe, shall be filed in
 
14 the office of the commissioner accompanied by an irrevocable
 
15 written consent to the service of process upon the commissioner
 
16 in actions against the investment adviser in manner and form
 
17 provided in section 485-12; the applicant's photograph; and a
 
18 form of the disclosure statement described in section 485-
 
19 25(c)(4).  Information on the registration statement shall
 
20 include:
 
21      (1)  The name and form of organization under which the
 
22           investment adviser engages or intends to engage in
 
23           business; the name of the state or other sovereign
 

 
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 1           power under which the investment adviser is organized;
 
 2           the location of the investment adviser's principal
 
 3           business office and branch offices, if any; the names
 
 4           and addresses of the investment adviser's partners,
 
 5           officers, directors, and persons performing similar
 
 6           functions or, if the investment adviser is an
 
 7           individual, of the individual; and the number of the
 
 8           investment adviser's employees;
 
 9      (2)  The education, the business affiliations for the past
 
10           five years, and the present business affiliations of
 
11           the investment adviser and of the investment adviser's
 
12           partners, officers, directors, and persons performing
 
13           similar functions and of any controlling person
 
14           thereof;
 
15      (3)  The nature of the business of the investment adviser,
 
16           including the manner of giving advice and rendering
 
17           analyses or reports;
 
18      (4)  A balance sheet certified by an independent public
 
19           accountant and other certified financial statements if
 
20           the investment adviser has custody of or discretionary
 
21           authority over client money, securities, or other
 
22           assets, or an unaudited, verified balance sheet and
 
23           financial statements if the investment adviser has no
 

 
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 1           custody of or discretionary authority over client
 
 2           money, securities, or other assets. If the investment
 
 3           adviser maintains its principal place of business in a
 
 4           state other than this State and the investment adviser
 
 5           is registered in that state and in compliance with its
 
 6           financial reporting requirements, this requirement
 
 7           shall be deemed satisfied by the investment adviser
 
 8           filing with the commissioner a copy of those financial
 
 9           statements, if any, that are required to be filed by
 
10           the adviser in the state where it maintains its
 
11           principal place of business;
 
12      (5)  The nature and scope of the authority of the investment
 
13           adviser with respect to clients' funds and accounts;
 
14      (6)  The basis or bases upon which the investment adviser is
 
15           compensated;
 
16      (7)  Whether the investment adviser, or any person employed
 
17           by or associated in business with the investment
 
18           adviser, is subject to any disqualification which would
 
19           be a basis for denial, suspension, or revocation of
 
20           registration of the investment adviser under section
 
21           485-15;
 

 
 
 
 
 
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 1      (8)  A statement as to whether the principal business of the
 
 2           investment adviser consists or is to consist of acting
 
 3           as investment adviser; and
 
 4      (9)  Other information as to the applicant's previous
 
 5           history, record, and association that the commissioner
 
 6           deems necessary including:
 
 7           (A)  Disclosure of any injunction or administrative
 
 8                order or conviction of a misdemeanor involving a
 
 9                security or any aspect of the securities business,
 
10                and any conviction of a felony;
 
11           (B)  The applicant's financial history; and
 
12           (C)  Any additional information that the commissioner
 
13                deems necessary to establish the applicant's
 
14                qualifications.
 
15      The commissioner may use a uniform registration form adopted
 
16 by the North American Securities Administrators Association, the
 
17 Securities and Exchange Commission, or any national securities
 
18 exchange or national securities association registered under the
 
19 Securities Exchange Act of 1934; provided the form encompasses
 
20 the information required under this section.
 
21      (f)  Approval, bond.  If the commissioner finds that the
 
22 applicant for registration as a dealer is eligible for
 
23 registration, then the commissioner shall register the applicant
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        


 1 as a dealer upon payment of the fee hereinafter provided and,
 
 2 except as otherwise provided in this subsection, upon the
 
 3 dealer's filing of a bond in the sum of $5,000 running to the
 
 4 State conditioned upon the faithful compliance with this chapter
 
 5 by the dealer and by all salespersons registered by the dealer
 
 6 while acting for the dealer.  The bond shall be executed as a
 
 7 surety by a surety company authorized to do business in the
 
 8 State; provided that no bond is required of or from any applicant
 
 9 if the applicant at the time of making application is a member of
 
10 any recognized stock or bond exchange which has been in existence
 
11 for a period of five years prior to April 29, 1931; provided
 
12 further that no bond is required of a dealer if the aggregate par
 
13 value of the securities to be sold is less than $5,000 or in the
 
14 case of no par value stock, if the price at which the stock is to
 
15 be offered to the public is less than $5,000 if the person
 
16 selling or offering the securities for sale to the public
 
17 notifies the commissioner in writing of the person's intention to
 
18 make the sale and after the sale files with the commissioner a
 
19 statement of the kind and amount of stock sold and the price
 
20 received therefor, but where the aggregate par value of the
 
21 securities or the price at which the stock is to be offered to
 
22 the public is less than $5,000 no more than one sale or offering
 
23 shall be allowed within a period of one year; provided further
 

 
Page 23                                                    2481
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 1 that in lieu of the above bond, any dealer may deposit and keep
 
 2 deposited with the commissioner cash in the amount of $5,000 or
 
 3 securities to be approved by the commissioner having a market
 
 4 value at all times of not less than $5,000 which cash or
 
 5 securities shall be held in trust [for the fulfilling of] to
 
 6 fulfill the same terms and conditions as in the case of a bond
 
 7 required by this section, which cash or securities may be
 
 8 withdrawn at any time subject to the deposit in lieu thereof of
 
 9 cash or other securities of equal value, or upon the filing of a
 
10 bond as provided in this section, and which cash or securities
 
11 will be so held in trust for a period of two years beyond the
 
12 revocation or termination of the registration of the dealer
 
13 depositing the same.  No bond shall be required under this
 
14 section or under this chapter of any dealer that is registered
 
15 under the Securities Exchange Act of 1934.
 
16      (g)  Investment adviser's approval; bond, insurance
 
17 required. If the commissioner finds that the applicant for
 
18 registration as an investment adviser is eligible for
 
19 registration, the commissioner shall register the investment
 
20 adviser upon a payment of a fee hereinafter provided, and, except
 
21 as otherwise provided in this subsection, upon the investment
 
22 adviser filing a bond in the sum of $50,000 with the State as the
 
23 obligee.  The bond requirement shall be $5,000 if the adviser
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        


 1 does not have custody of or discretionary authority over client
 
 2 money, securities, or other assets.  The bond shall be
 
 3 conditioned upon the faithful compliance with this chapter by the
 
 4 investment adviser.  The bond shall be executed as a surety by a
 
 5 surety company authorized to do business in the State; provided
 
 6 that in lieu of the above bond any investment adviser may deposit
 
 7 and keep deposited with the commissioner cash in the applicable
 
 8 amount of $50,000 or $5,000 or securities to be approved by the
 
 9 commissioner having a market value at all times of not less than
 
10 $50,000 or $5,000 which cash or securities shall be held in trust
 
11 [for the fulfilling of] to fulfill the same terms and conditions
 
12 as in the case of a bond required by this section, which cash or
 
13 securities may be withdrawn at any time subject to the deposit in
 
14 lieu thereof of cash or other securities of equal value, or upon
 
15 the filing of a bond as provided in this section, and which cash
 
16 or securities will be so held in trust for a period of two years
 
17 beyond the revocation or termination of the registration of the
 
18 investment adviser depositing the same.  In addition, except as
 
19 otherwise provided in this subsection, the investment adviser
 
20 shall file with the commissioner a certificate of insurance which
 
21 indicates that the investment adviser's business is insured for
 
22 errors and omissions for at least $100,000 per occurrence with a
 
23 $200,000 aggregate for those with less than two years experience
 

 
Page 25                                                    2481
                                     H.B. NO.           H.D. 1
                                                        
                                                        


 1 and a $500,000 aggregate for those with two or more years of
 
 2 experience for the protection of the investment adviser's client,
 
 3 or shall meet an alternative requirement which also provides for
 
 4 the protection of the client of the investment adviser, as
 
 5 determined by rules adopted by the commissioner.  This subsection
 
 6 shall not apply to any investment adviser that maintains its
 
 7 principal place of business in a state other than this State;
 
 8 provided that the investment adviser is registered in the state
 
 9 where it maintains its principal place of business and [[]is[]]
 
10 in compliance with that state's net capital and bonding
 
11 requirements, if any.
 
12      (h)  Eligibility for registration as a salesperson. To be
 
13 eligible for registration under this chapter, a salesperson shall
 
14 have complied with the mandatory provisions of this section,
 
15 shall be designated as a salesperson by a registered dealer, and
 
16 shall take and pass an oral or written examination, or both,
 
17 prescribed by the commissioner, to test the salesperson's
 
18 knowledge of the securities business.  Every person required to
 
19 take such an examination shall, at or before the time the person
 
20 takes the same, pay a fee as prescribed by the commissioner.
 
21 However, registration is not required of a salesperson who
 
22 represents a dealer in effecting transactions in this State
 
23 limited to those transactions described in section 15(h)(2) of
 

 
Page 26                                                    2481
                                     H.B. NO.           H.D. 1
                                                        
                                                        


 1 the Securities Exchange Act of 1934.  No person shall be
 
 2 designated as a salesperson by, or shall act as a salesperson
 
 3 for, more than one registered dealer.
 
 4      (i)  Registration of salespersons.  An information
 
 5 statement, containing information as the commissioner shall
 
 6 prescribe, shall be filed where prescribed by the commissioner,
 
 7 together with an appointment of the applicant as a salesperson by
 
 8 a registered dealer.  The commissioner may require the following:
 
 9      (1)  Disclosure of any injunction or administrative order or
 
10           conviction of a misdemeanor involving a security or any
 
11           aspect of the securities business and any conviction of
 
12           a felony;
 
13      (2)  The applicant's financial history and condition;
 
14      (3)  Disclosure as to whether the salesperson or any person
 
15           associated in business with the salesperson is subject
 
16           to any disqualification which would be a basis for
 
17           denial, suspension, or revocation of registration of
 
18           the salesperson under section 485-15; and
 
19      (4)  Any additional information [as] that the commissioner
 
20           deems necessary to establish the applicant's
 
21           qualifications.
 
22 If the commissioner finds a salesperson designated by any
 
23 registered dealer to be eligible for registration as a
 

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


 1 salesperson, the commissioner shall register the person as a
 
 2 salesperson upon the payment of the fee hereinafter provided.
 
 3      (j)  Eligibility for registration as an investment adviser
 
 4 representative.  To be eligible for registration under this
 
 5 chapter, an investment adviser representative shall have complied
 
 6 with the mandatory provisions of this section, shall be
 
 7 designated as a representative by a federal covered adviser or a
 
 8 registered investment adviser, and shall take and pass an oral or
 
 9 written examination, or both, prescribed by the commissioner, to
 
10 test the representative's knowledge of the investment advisory
 
11 and securities business; provided that the commissioner may by
 
12 rule set forth exemptions to the examination requirement.  Every
 
13 person required to take such an examination shall, at or before
 
14 the time the person takes the same, pay a fee as prescribed by
 
15 the commissioner.  No person shall be designated as an investment
 
16 adviser representative by, or shall act as an investment adviser
 
17 representative for, more than one federal covered adviser or
 
18 registered investment adviser.
 
19      (k)  Registration of investment adviser representative.  An
 
20 information statement, containing information that the
 
21 commissioner shall prescribe, duly verified by oath by the
 
22 applicant, shall be filed in the office of the commissioner,
 
23 together with an appointment of the applicant as an investment
 

 
Page 28                                                    2481
                                     H.B. NO.           H.D. 1
                                                        
                                                        


 1 adviser representative by a registered investment adviser if the
 
 2 representative is seeking registration with an investment
 
 3 adviser.  The commissioner may require the following:
 
 4      (1)  Disclosure of any injunction or administrative order or
 
 5           conviction of a misdemeanor involving a security or any
 
 6           aspect of the securities business, and any conviction
 
 7           of a felony;
 
 8      (2)  The applicant's financial history and condition;
 
 9      (3)  Disclosure as to whether the investment adviser
 
10           representative, or any person associated in business
 
11           with the investment adviser representative, is subject
 
12           to any disqualification which would be a basis for
 
13           denial, suspension, or revocation of registration of
 
14           the investment adviser representative under section
 
15           485-15; and
 
16      (4)  Any additional information that the commissioner deems
 
17           necessary to establish the applicant's qualifications.
 
18 If the commissioner finds an investment adviser representative
 
19 designated by any federal covered adviser or investment adviser
 
20 to be eligible for registration as an investment adviser
 
21 representative, the commissioner shall register the person as an
 
22 investment adviser representative upon the payment of a fee
 
23 hereinafter provided.
 

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


 1      (l)  Recording; duration; renewal; fee.  The [name] names
 
 2 and addresses of all persons found eligible for registration as
 
 3 dealers, investment advisers, salespersons, or investment adviser
 
 4 representatives and all orders with respect thereto shall be
 
 5 recorded in a register of dealers, investment advisers,
 
 6 salespersons, and investment adviser representatives kept in the
 
 7 office of the commissioner [which] and shall be open to public
 
 8 inspection.  Except as hereinafter provided, every registration
 
 9 for investment advisers and investment adviser representatives
 
10 under this section shall expire on December 31 in each odd-
 
11 numbered year, and every registration for dealers and
 
12 salespersons under this section shall expire on December 31 of
 
13 each year.  Applications for renewals shall be made not less than
 
14 thirty nor more than sixty days before the end of the expiration
 
15 year or as provided through the Central Registration Depository
 
16 system.  Any applicant for renewal of a dealer, investment
 
17 adviser, salesperson, or investment adviser representative
 
18 registration who does not submit the application within the time
 
19 prescribed by this section shall pay a penalty of one hundred per
 
20 cent of the applicable renewal fee.  Any applicant for renewal of
 
21 a dealer or investment adviser registration who submits the
 
22 application after December 31 of the expiration year shall be
 
23 required to reapply as a new dealer or investment adviser.  The
 

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


 1 registration of any dealer, investment adviser, salesperson, or
 
 2 investment adviser representative may be revoked or terminated
 
 3 prior to its expiration by written notice filed with the
 
 4 commissioner by the registered dealer, registered salesperson,
 
 5 registered investment adviser, or registered investment adviser
 
 6 representative concerned, and the revocation shall take effect as
 
 7 of the date and time of filing of the notice.  Upon revocation or
 
 8 termination of the registration of any dealer, investment
 
 9 adviser, salesperson, or investment adviser representative, the
 
10 dealer's, investment adviser's, salesperson's, or investment
 
11 adviser representative's certificate of registration shall be
 
12 surrendered to the commissioner for cancellation.  The fee for
 
13 registration and for each renewal shall be $200 in the case of
 
14 dealers and investment advisers and $50 in the case of
 
15 salespersons and investment adviser representatives.
 
16      (m)  Changes.  Changes in registration occasioned by changes
 
17 in the personnel of a partnership or in the principals,
 
18 copartners, officers, or directors of any [dealer] dealer's or
 
19 investment adviser's business may be made from time to time by
 
20 written application setting forth the facts with respect to such
 
21 change.
 
22      (n)  Announcement of registration application.  The
 
23 commissioner, by rule, may require an applicant for initial
 

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


 1 registration as a dealer, investment adviser, salesperson, or
 
 2 investment adviser representative to publish an announcement of
 
 3 the application in one or more newspapers of general circulation
 
 4 in this State.
 
 5      (o)  Notice of intent to offer.  Every registered dealer who
 
 6 intends to offer any security of any issue registered or to be
 
 7 registered shall notify the commissioner in writing of the
 
 8 dealer's intention [so] to do[.] so.  The notice shall contain
 
 9 the name of the dealer[,] and shall state the name of the
 
10 security to be offered for sale, and whenever a dealer has
 
11 prepared such notice and has forwarded the same by registered
 
12 mail, postage prepaid, and properly addressed to the
 
13 commissioner, such dealer, as to the contents of the notice and
 
14 the filing thereof, is deemed to have complied with the
 
15 requirements of this subsection.
 
16      (p)  Issuers as dealers.  Any issuer of a security required
 
17 to be registered under this chapter selling such securities
 
18 (other than in exempt transactions as defined in section 485-6),
 
19 and any issuer of an exempt security as defined in section 485-
 
20 4(9) and (10) offering such securities (other than (1) in exempt
 
21 transactions as defined in section 485-6, or (2) through a dealer
 
22 registered pursuant to this chapter) shall file with the
 
23 commissioner a bond or deposit securities or cash in an amount,
 

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


 1 based on the total capitalization, to be determined by the
 
 2 commissioner in the commissioner's discretion, which amount,
 
 3 however, shall not be less than $5,000, nor more than $25,000,
 
 4 subject also to the same conditions as herein prescribed in the
 
 5 case of dealers, and may appoint salespersons in the manner
 
 6 herein prescribed in the case of dealers.
 
 7      (q)  Capital requirement for dealers and investment advisers
 
 8 who have custody of or discretionary authority over client money,
 
 9 securities, or other assets.  Except as otherwise provided in
 
10 this subsection, the commissioner may by rule require a minimum
 
11 capital requirement for registered dealers which shall not be
 
12 less than $5,000 in the case of dealers and prescribe a ratio
 
13 between net capital and aggregate indebtedness.  This subsection
 
14 shall not apply to any dealer that is registered under the
 
15 Securities Exchange Act of 1934.  The commissioner may by rule
 
16 require a net worth requirement which shall not be less than
 
17 $5,000 for investment advisers.  This subsection shall not apply
 
18 to any investment adviser that maintains its principal place of
 
19 business in a state other than this State; provided that the
 
20 investment adviser is registered in the state where it maintains
 
21 its principal place of business and is in compliance with that
 
22 state's net worth or net capital requirements, if any.
 

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


 1      (r)  A registered broker dealer or investment adviser may
 
 2 file an application for registration of a successor, whether or
 
 3 not the successor is then in existence, for the unexpired portion
 
 4 of the year.  There shall be no filing fee for registration of a
 
 5 successor."
 
 6      SECTION 6.  Section 485-15, Hawaii Revised Statutes, is
 
 7 amended to read as follows:
 
 8      "§485-15  Denial, revocation, or suspension of dealers',
 
 9 investment advisers', salespersons', and investment adviser
 
10 representatives' registration; suspension during investigation,
 
11 etc.  Upon the finding of errors in a registration statement or
 
12 the filing of complaints by consumers or by any government
 
13 agency, the commissioner may conduct an investigation of the
 
14 applicant or registrant and [registration under section 485-14
 
15 may be refused or any registration granted may be revoked by the
 
16 commissioner of securities] the commissioner may deny an
 
17 application for registration, revoke or suspend any registration,
 
18 or limit or impose conditions on the securities activities that a
 
19 registrant may conduct in this State, if after [a] reasonable
 
20 notice and a hearing the commissioner determines that the
 
21 applicant or registrant [so registered]:
 
22      (1)  Has filed an application for registration which as of
 
23           its effective date, or as of any date after filing in
 

 
Page 34                                                    2481
                                     H.B. NO.           H.D. 1
                                                        
                                                        


 1           the case of an order denying effectiveness, was
 
 2           incomplete in any material respect or contained any
 
 3           statement which was, in light of the circumstances
 
 4           under which it was made, false or misleading with
 
 5           respect to any material fact;
 
 6      (2)  Has violated or failed to comply with any provision of
 
 7           this chapter or any rule or order under this chapter;
 
 8      (3)  Has been convicted, within the past ten years, of any
 
 9           misdemeanor involving a security or any aspect of the
 
10           securities business, or any felony;
 
11      (4)  Is permanently or temporarily enjoined by any court of
 
12           competent jurisdiction for engaging in or continuing
 
13           any conduct or practice involving any aspect of the
 
14           securities business;
 
15      (5)  Is the subject of an order of the commissioner denying,
 
16           suspending, or revoking registration as a dealer,
 
17           investment adviser, salesperson, or investment adviser
 
18           representative;
 
19      (6)  Is the subject of an order entered within the past five
 
20           years by the securities administrator of any other
 
21           state or by the Securities and Exchange Commission
 
22           denying or revoking registration as a dealer,
 
23           investment adviser, salesperson, or investment adviser
 

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


 1           representative, or the substantial equivalent of those
 
 2           terms as defined in this chapter, or is the subject of
 
 3           an order of the Securities and Exchange Commission
 
 4           suspending or expelling the applicant or registrant
 
 5           from a national securities exchange or national
 
 6           securities association registered under the Securities
 
 7           Exchange Act of 1934, or is the subject of a United
 
 8           States Post Office fraud order; but:
 
 9           (A)  The commissioner may not institute a revocation or
 
10                suspension proceeding under this paragraph more
 
11                than one year from the date of the order relied
 
12                on, and
 
13           (B)  The commissioner may not enter an order under this
 
14                paragraph on the basis of an order under another
 
15                law of this State unless that order was based on
 
16                facts which would currently constitute a ground
 
17                for an order under this section;
 
18      (7)  Has engaged or is about to engage in fraudulent,
 
19           dishonest, or unethical practices in the securities
 
20           business;
 
21      (8)  Is insolvent, either in the sense that liabilities
 
22           exceed assets or in the sense that the dealer,
 
23           investment adviser, salesperson, or investment adviser
 

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


 1           representative cannot meet obligations as they mature;
 
 2           but the commissioner may not enter an order against a
 
 3           dealer or investment adviser under this paragraph
 
 4           without a finding of insolvency as to the dealer or
 
 5           investment adviser;
 
 6      (9)  Is not qualified on the basis of such factors as
 
 7           training, experience, and knowledge of the securities
 
 8           business;
 
 9     (10)  Has failed reasonably to supervise agents, if a
 
10           dealer[,] or an agent of a dealer with supervisory
 
11           responsibilities, or employees, if an investment
 
12           adviser[;] or an employee of an investment advisor with
 
13           supervisory responsibilities; for the purposes of this
 
14           paragraph no person shall be deemed to have failed
 
15           reasonably to supervise any person if there have been
 
16           established procedures, and a system for applying such
 
17           procedures, which would reasonably be expected to
 
18           prevent and detect, insofar as practicable, any such
 
19           violations by such other person, and such person has
 
20           reasonably discharged the duties and obligations
 
21           incumbent upon the person by reason of such procedures
 

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


 1           and system without reasonable cause to believe that
 
 2           such procedures and system were not being complied
 
 3           with; or
 
 4     (11)  Has demonstrated unworthiness to transact the business
 
 5           of dealer, investment adviser, salesperson, or
 
 6           investment adviser representative.
 
 7      In cases of charges against a salesperson or investment
 
 8 adviser representative notice thereof shall also be given the
 
 9 dealer or investment adviser employing such salesperson or
 
10 investment adviser representative.  Pending the hearing, the
 
11 commissioner may order the suspension of the dealer's, investment
 
12 adviser's, salesperson's, or investment adviser representative's
 
13 registration; provided the order states the cause for the
 
14 suspension.
 
15      Until the entry of a final order the suspension of the
 
16 dealer's or investment adviser's registration, though binding
 
17 upon the persons notified thereof, shall be deemed confidential,
 
18 and shall not be published, unless it appears that the order of
 
19 suspension has been violated after notice.
 
20      In the event the commissioner determines to refuse or revoke
 
21 a registration as [hereinabove] provided[,] in this section, the
 
22 commissioner shall enter a final order [herein] with the
 
23 commissioner's findings on the register of dealers, investment
 

 
Page 38                                                    2481
                                     H.B. NO.           H.D. 1
                                                        
                                                        


 1 advisers, salespersons, and investment adviser representatives;
 
 2 and suspension or revocation of the registration of a dealer or
 
 3 investment adviser shall also suspend or revoke the registration
 
 4 of all the dealer's or investment adviser's salespersons or
 
 5 investment adviser representatives.
 
 6      It shall be sufficient cause for refusal or cancellation of
 
 7 registration in case of a partnership or corporation or any
 
 8 unincorporated association, if any member of a partnership or any
 
 9 officer or director of the corporation or association has been
 
10 guilty of any act or omission which would be cause for refusing
 
11 or revoking the registration of an individual dealer, investment
 
12 adviser, salesperson, or investment adviser representative."
 
13      SECTION 7.  Statutory material to be repealed is bracketed.
 
14 New statutory material is underscored. 
 
15      SECTION 8.  This Act shall take effect upon its approval.