2822
THE SENATE                              S.B. NO.           
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 6 adviser representative may be withdrawn without prejudice by the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 written notice to the commissioner before the
 
 8 registration becomes effective unless a proceeding under section
 
 9 485-15 is pending.
 
10      (b)  Withdrawal from registration as a dealer, investment
 
11 adviser, salesperson, or investment adviser representative shall
 
12 be effective ninety days after receipt by the commissioner of an
 
13 application to withdraw, or at such earlier time as the
 
14 commissioner may allow, unless:
 
15      (1)  A proceeding under section 485-15 against the
 
16           registered person is pending when the application to
 
17           withdraw is received or is instituted within ninety
 
18           days thereafter; or
 
19      (2)  Additional information regarding the application to
 

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

 
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 1           person who has no place of business in this State if
 
 2           (i) the person effects transactions in this State
 
 3           exclusively with or through the issuers of the
 
 4           securities involved in the transactions; other dealers;
 
 5           or banks, savings institutions, trust companies,
 
 6           insurance companies, investment companies as defined in
 
 7           the Investment Company Act of 1940, pension or profit-
 
 8           sharing trusts, or other financial institutions or
 
 9           institutional buyers, whether acting for themselves or
 
10           as trustees, or (ii) during any period of twelve
 
11           consecutive months the person does not direct more than
 
12           fifteen offers to sell or to buy into this State in any
 
13           manner to persons other than those specified in clause
 
14           (i), whether or not the offeror or any of the offerees
 
15           is then present in this State, [or] (D) any person
 
16           licensed as a real estate broker or real estate
 
17           salesperson under the laws of the State while effecting
 
18           transactions in a security exempted by section 485-
 
19           6(14)[.], or (E) a person who is a resident of Canada,
 
20           has no office or other physical presence in this State,
 
21           and: (i) only affects or attempts to effect
 
22           transactions in securities with or through the issuers
 

 
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 1           of securities involved in the transactions, broker
 
 2           dealers, banks, savings institutions, trust companies,
 
 3           insurance companies, investment companies (as defined
 
 4           in the Investment Company Act of 1940), pension or
 
 5           profit-sharing trusts, or other financial institutions
 
 6           or institutional buyers, whether acting for themselves
 
 7           or as trustees; with or for a person from Canada who is
 
 8           present temporarily in this State and with whom a
 
 9           bonafide business relationship existed before the
 
10           person entered this State; or with or for a person from
 
11           Canada who is present in this State, whose transactions
 
12           are in a self-directed tax advantaged retirement plan
 
13           in Canada of which the person is the holder or
 
14           contributor; (ii) files a notice in the form of the
 
15           person's current Canadian securities registration, and
 
16           a consent to the service of process; (iii) is a member
 
17           of a duly authorized self-regulatory organization or
 
18           stock exchange in Canada; (iv) maintains the provincial
 
19           or territorial registration and membership in a self-
 
20           regulatory organization or stock exchange of such
 
21           person in good standing; (v) discloses to the person's
 
22           clients in this State that such person is not subject
 

 
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 1           to the full regulatory requirements of this chapter;
 
 2           and (vi) is not a violation of this chapter."
 
 3      SECTION 3.  Section 485-2, Hawaii Revised Statutes, is
 
 4 amended to read as follows:
 
 5      "§485-2  Commissioner of securities.  (a)  The
 
 6 administration of this chapter shall be vested in the
 
 7 commissioner of securities.  The director of commerce and
 
 8 consumer affairs shall, with the approval of the governor,
 
 9 appoint the commissioner of securities who shall not be subject
 
10 to chapters 76 and 77.  The securities commissioner shall hold
 
11 the commissioner's office at the pleasure of the director of
 
12 commerce and consumer affairs and shall be responsible for the
 
13 performance of the duties imposed under this chapter.
 
14      (b)  The commissioner of securities may adopt, amend, and
 
15 repeal, pursuant to chapter 91, such rules as may be necessary to
 
16 carry out the purposes of this chapter.
 
17      (c)  Notwithstanding the provisions of chapter 91, the
 
18 commissioner of securities may adopt, amend, and repeal such
 
19 forms and orders as are necessary to carry out and define the
 
20 provisions of this chapter.  No form or order may be adopted,
 
21 amended, or repealed unless the commissioner of securities finds
 
22 that the action is necessary or appropriate in the public
 

 
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 1 interest or for the protection of investors, and is consistent
 
 2 with the purposes of this chapter."
 
 3      SECTION 4.  Section 485-6, Hawaii Revised Statutes, is
 
 4 amended to read as follows:
 
 5      "§485-6  Exempt transactions.  The following transactions
 
 6 are exempted from sections 485-4.5, 485-8, and 485-25(a)(7):
 
 7      (1)  Any isolated nonissuer transaction, whether effected
 
 8           through a dealer or not;
 
 9      (2)  Any nonissuer distribution of an outstanding security
 
10           if the manual of Hawaiian securities or any other
 
11           recognized securities manual contains the names of the
 
12           issuer's officers and directors, a balance sheet of the
 
13           issuer as of a date within eighteen months, and a
 
14           profit and loss statement for either the fiscal year
 
15           preceding that date or the most recent year of
 
16           operations, or the security has a fixed maturity or a
 
17           fixed interest or dividend provision and there has been
 
18           no default during the current fiscal year or within the
 
19           three preceding fiscal years (or during the existence
 
20           of the issuer and any predecessors if less than three
 
21           years) in the payment of principal, interest, or
 
22           dividends on the security;
 

 
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 1      (3)  Any nonissuer transaction effected by or through a
 
 2           registered dealer pursuant to an unsolicited order or
 
 3           offer to buy;
 
 4      (4)  Any transaction between the issuer or other person on
 
 5           whose behalf the offering is made and an underwriter,
 
 6           or among underwriters;
 
 7      (5)  Any transaction in a bond or other evidence of
 
 8           indebtedness secured by a real or chattel mortgage or
 
 9           deed of trust, or by an agreement for the sale of real
 
10           estate or chattels, if the entire mortgage, deed of
 
11           trust, or agreement, together with all the bonds or
 
12           other evidences of indebtedness secured thereby, is
 
13           offered and sold as a unit;
 
14      (6)  Any transaction by a personal representative, sheriff,
 
15           marshal, receiver, trustee in bankruptcy, guardian, or
 
16           conservator;
 
17      (7)  Any transaction executed by a bona fide pledgee without
 
18           any purpose of evading this chapter;
 
19      (8)  Any offer or sale to a bank, savings institution, trust
 
20           company, insurance company, investment company as
 
21           defined in the Investment Company Act of 1940, pension
 
22           or profit-sharing trust, or other financial institution
 

 
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 1           or institutional buyer, or to a dealer, whether the
 
 2           purchaser is acting for itself or in some fiduciary
 
 3           capacity;
 
 4      (9)  Any transaction pursuant to an offer directed by the
 
 5           offerer to not more than twenty-five persons (other
 
 6           than those designated in paragraph (8)) in the State
 
 7           during any period of twelve consecutive months, whether
 
 8           or not the offerer or any of the offerees is then
 
 9           present in the State, if all buyers represent that they
 
10           are purchasing for investment (rather than with a
 
11           present view to resale) and the seller reasonably
 
12           accepts their representations as true, and no
 
13           commission or other remuneration is paid or given
 
14           directly or indirectly for soliciting any prospective
 
15           buyer;
 
16     (10)  Any offer or sale of a preorganization certificate or
 
17           subscription for any security to be issued by any
 
18           person if no commission or other remuneration is paid
 
19           or given directly or indirectly for soliciting any
 
20           prospective subscriber, and the number of subscribers
 
21           does not exceed twenty-five;
 
22     (11)  Any transaction pursuant to an offer to existing
 

 
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 1           security holders of the issuer, including persons who
 
 2           at the time of the transaction are holders of
 
 3           convertible securities, nontransferable warrants, or
 
 4           transferable warrants exercisable within ninety days of
 
 5           their issuance, if no commission or other remuneration
 
 6           (other than standby commission) is paid or given
 
 7           directly or indirectly for soliciting any security
 
 8           holder in the State;
 
 9     (12)  Any offer (but not a sale) of a security for which
 
10           registration statements have been filed under both this
 
11           chapter and the Securities Act of 1933, if no stop
 
12           order or refusal order is in effect and no public
 
13           proceeding or examination looking toward the order is
 
14           pending under either this chapter or the Act;
 
15     (13)  Any offer or sale by or through a real estate broker or
 
16           real estate salesperson licensed under the laws of the
 
17           State, of a security issued on or after July 1, 1961,
 
18           by a corporation organized under the laws of the State,
 
19           the holder of which is entitled solely by reason of the
 
20           holder's ownership thereof, to occupy for dwelling
 
21           purposes, or to a lease which entitles the holder to
 
22           occupy for dwelling purposes a house, or an apartment
 

 
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 1           in a building, owned or leased by the corporation,
 
 2           subject, however, to section 485-7;
 
 3     (14)  Any offer or sale by or through a real estate broker or
 
 4           real estate salesperson licensed under the laws of the
 
 5           State of an apartment in a condominium project, and a
 
 6           rental management contract relating to the apartment,
 
 7           including an interest in a general or limited
 
 8           partnership formed for the purpose of managing the
 
 9           rental of apartments if the rental management contract
 
10           or the interest in the general or limited partnership
 
11           is offered at the same time as the apartment is
 
12           offered.  The words "apartment", "condominium", and
 
13           "project" are defined as they are defined in section
 
14           514A-3;
 
15     (15)  Any transactions not involving a public offering, and
 
16           in addition, any categories of transactions effected in
 
17           accordance with any rules the commissioner may [issue]
 
18           adopt under chapter 91 pursuant to this paragraph with
 
19           a view to uniformity with federal law; [and]
 
20     (16)  (A)  Any transactions involving the offer or sale of a
 
21                security by an issuer to an accredited investor
 
22                that meet the following requirements:
 

 
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 1                (i)  The issuer reasonably believes that the sale
 
 2                     is to persons who are accredited investors;
 
 3               (ii)  The issuer is not in the development stage,
 
 4                     without specific business plan or purpose;
 
 5              (iii)  The issuer has not indicated that the
 
 6                     issuer's business plan is to engage in a
 
 7                     merger or acquisition with an unidentified
 
 8                     company or companies, or other entity or
 
 9                     person; and
 
10               (iv)  The issuer reasonably believes that all
 
11                     purchasers are purchasing for investment
 
12                     purposes and not with the view to, or for
 
13                     sales in connection with, a distribution of
 
14                     the security.  Any resale of a security sold
 
15                     in reliance [of] on this exemption within
 
16                     twelve months of sale shall be presumed to be
 
17                     made with a view to distribute and not to
 
18                     invest, except a resale pursuant to a
 
19                     registration statement effective under
 
20                     section 485-8, or to an accredited investor
 
21                     pursuant to an exemption available under
 
22                     chapter 485;
 

 
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 1           (B)  The exemption under this paragraph shall not apply
 
 2                to an issuer if the issuer; any affiliated issuer;
 
 3                any beneficial owner of ten per cent or more of
 
 4                any class of the issuer's equity securities; any
 
 5                issuer's predecessor, director, officer, general
 
 6                partner, or promoter presently connected in any
 
 7                capacity with the issuer; and any underwriter or
 
 8                partner, director, or officer of the underwriter
 
 9                of the securities to be offered:
 
10                (i)  Within the last five years has filed a
 
11                     registration statement that is the subject of
 
12                     a currently effective registration stop order
 
13                     entered by any state securities administrator
 
14                     or the United States Securities and Exchange
 
15                     Commission;
 
16               (ii)  Within the last five years has been convicted
 
17                     of any criminal offense in connection with
 
18                     the offer, purchase, or sale of any security,
 
19                     or involving fraud or deceit;
 
20              (iii)  Is currently subject to any state or federal
 
21                     administrative enforcement order or judgment
 
22                     entered within the last five years, finding
 

 
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 1                     fraud or deceit in connection with the
 
 2                     purchase or sale of any security; or
 
 3               (iv)  Is currently subject to any order, judgment,
 
 4                     or decree of any court of competent
 
 5                     jurisdiction, entered within the last five
 
 6                     years, temporarily, preliminarily, or
 
 7                     permanently restraining or enjoining such
 
 8                     party from engaging in or continuing to
 
 9                     engage in any conduct or practice involving
 
10                     fraud or deceit in connection with the
 
11                     purchase or sale of any security;
 
12           (C)  Subparagraph (B) shall not apply if:
 
13                (i)  The party subject to the disqualification is
 
14                     licensed or registered to conduct securities-
 
15                     related business in the state in which the
 
16                     order, judgment, or decree creating the
 
17                     disqualification was entered against such
 
18                     party;
 
19               (ii)  Before the first offer under this exemption,
 
20                     the commissioner, or the court or regulatory
 
21                     authority that entered the order, judgment,
 
22                     or decree waives the disqualifications; or
 

 
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 1              (iii)  The issuer establishes that the issuer did
 
 2                     not know and in the exercise of reasonable
 
 3                     care, based on a factual inquiry, could not
 
 4                     have known that a disqualification existed
 
 5                     under this paragraph;
 
 6           (D)  An issuer claiming the exemption under this
 
 7                section, within fifteen days after the first sale
 
 8                in this [state,] State, shall file with the
 
 9                commissioner a notice of transaction, a consent to
 
10                service of process, a copy of the general
 
11                announcement as required by section [485-C,]
 
12                485-B, and a $200 filing fee; and
 
13           (E)  For the purposes of this paragraph, "accredited
 
14                investor" shall have the same meaning as provided
 
15                in 17 Code of Federal Regulations section
 
16                230.501(a)[.]; and
 
17     (17)  Any offer or sale of a security affected by a resident
 
18           of Canada who is excluded from the definition of dealer
 
19           under section 485-4(3)(E)."
 
20      SECTION 5.  Section 485-14, Hawaii Revised Statutes, is
 
21 amended to read as follows:
 
22      "§485-14  Registration of dealers, investment advisers,
 

 
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 1 salespersons, and investment adviser representatives.(a)  It is
 
 2 unlawful for any person to transact business in this State as a
 
 3 dealer, investment adviser, salesperson, or investment adviser
 
 4 representative unless registered under this chapter.  However,
 
 5 nothing in this chapter shall prevent the commissioner from
 
 6 participating, in whole or in part, in the Central Registration
 
 7 Depository system, in cooperation with the National Association
 
 8 of Securities Dealers, Inc., other states, and the United States,
 
 9 to the extent participation is deemed to be in the public
 
10 interest of this State.
 
11      (b)  Eligibility for registration as a dealer.  To be
 
12 eligible for registration as a dealer, an applicant shall have
 
13 had (or if the applicant is a partnership or corporation have at
 
14 least one partner, officer, or employee who has) at least one
 
15 year of experience as a full-time security salesperson or
 
16 experience as a security salesperson on a part-time basis found
 
17 by the commissioner of securities to be substantially equivalent
 
18 thereto[,]; provided that [the foregoing] this experience
 
19 requirement shall not apply to issuers of securities applying for
 
20 registration as dealers for the sole purpose of issuing and
 
21 selling securities issued by them.
 
22      (c)  Application for registration as a dealer.  [An] A
 

 
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 1 written application for registration as a dealer [in writing]
 
 2 shall be filed in the office of the commissioner in such form as
 
 3 the commissioner may prescribe, duly verified by oath, and shall
 
 4 state the principal office of the applicant wherever situated,
 
 5 and the location of the principal office and branch offices in
 
 6 the State, if any, the name and style of doing business, the
 
 7 names, residence, and business of principals, copartners,
 
 8 officers, and directors, specifying as to each person's capacity
 
 9 and title, the general plan and character of business, the length
 
10 of time the dealer has been engaged in business and information
 
11 as to the time, place, and character of experience as a
 
12 securities salesperson. The commissioner may also require such
 
13 additional information as to the applicant's previous history,
 
14 record, and association including the following:
 
15      (1)  Any injunction or administrative order or conviction of
 
16           a misdemeanor involving a security or any aspect of the
 
17           securities business, and any conviction of a felony;
 
18      (2)  The applicant's financial condition and history;
 
19      (3)  Whether the dealer, or any person employed by or
 
20           associated in business with the dealer, is subject to
 
21           any disqualification which would be a basis for denial,
 
22           suspension, or revocation of registration of the dealer
 

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

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

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

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

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

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

 
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 1 depositing the same.  No bond shall be required under this
 
 2 section or under this chapter of any dealer that is registered
 
 3 under the Securities Exchange Act of 1934.
 
 4      (g)  Investment adviser's approval; bond, insurance
 
 5 required. If the commissioner finds that the applicant for
 
 6 registration as an investment adviser is eligible for
 
 7 registration, the commissioner shall register the investment
 
 8 adviser upon a payment of a fee hereinafter provided, and, except
 
 9 as otherwise provided in this subsection, upon the investment
 
10 adviser filing a bond in the sum of $50,000 with the State as the
 
11 obligee.  The bond requirement shall be $5,000 if the adviser
 
12 does not have custody of or discretionary authority over client
 
13 money, securities, or other assets.  The bond shall be
 
14 conditioned upon the faithful compliance with this chapter by the
 
15 investment adviser.  The bond shall be executed as a surety by a
 
16 surety company authorized to do business in the State; provided
 
17 that in lieu of the above bond any investment adviser may deposit
 
18 and keep deposited with the commissioner cash in the applicable
 
19 amount of $50,000 or $5,000 or securities to be approved by the
 
20 commissioner having a market value at all times of not less than
 
21 $50,000 or $5,000 which cash or securities shall be held in trust
 
22 [for the fulfilling of] to fulfill the same terms and conditions
 

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

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

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

 
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                                     S.B. NO.           
                                                        
                                                        


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

 
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                                     S.B. NO.           
                                                        
                                                        


 1      (2)  The applicant's financial history and condition;
 
 2      (3)  Disclosure as to whether the investment adviser
 
 3           representative, or any person associated in business
 
 4           with the investment adviser representative, is subject
 
 5           to any disqualification which would be a basis for
 
 6           denial, suspension, or revocation of registration of
 
 7           the investment adviser representative under section
 
 8           485-15; and
 
 9      (4)  Any additional information that the commissioner deems
 
10           necessary to establish the applicant's qualifications.
 
11      If the commissioner finds an investment adviser
 
12 representative designated by any federal covered adviser or
 
13 investment adviser to be eligible for registration as an
 
14 investment adviser representative, the commissioner shall
 
15 register the person as an investment adviser representative upon
 
16 the payment of a fee hereinafter provided.
 
17      (l)  Recording; duration; renewal; fee.  The [name] names
 
18 and addresses of all persons found eligible for registration as
 
19 dealers, investment advisers, salespersons, or investment adviser
 
20 representatives and all orders with respect thereto shall be
 
21 recorded in a register of dealers, investment advisers,
 
22 salespersons, and investment adviser representatives kept in the
 

 
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 1 office of the commissioner [which] and shall be open to public
 
 2 inspection.  Except as hereinafter provided, every registration
 
 3 for investment advisers and investment adviser representatives
 
 4 under this section shall expire on December 31 in each odd-
 
 5 numbered year, and every registration for dealers and
 
 6 salespersons under this section shall expire on December 31 of
 
 7 each year.  Applications for renewals shall be made not less than
 
 8 thirty nor more than sixty days before the end of the expiration
 
 9 year or as provided through the Central Registration Depository
 
10 system.  Any applicant for renewal of a dealer, investment
 
11 adviser, salesperson, or investment adviser representative
 
12 registration who does not submit the application within the time
 
13 prescribed by this section shall pay a penalty of one hundred per
 
14 cent of the applicable renewal fee.  Any applicant for renewal of
 
15 a dealer or investment adviser registration who submits the
 
16 application after December 31 of the expiration year shall be
 
17 required to reapply as a new dealer or investment adviser.  The
 
18 registration of any dealer, investment adviser, salesperson, or
 
19 investment adviser representative may be revoked or terminated
 
20 prior to its expiration by written notice filed with the
 
21 commissioner by the registered dealer, registered salesperson,
 
22 registered investment adviser, or registered investment adviser
 

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

 
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 1      (o)  Notice of intent to offer.  Every registered dealer who
 
 2 intends to offer any security of any issue registered or to be
 
 3 registered shall notify the commissioner in writing of the
 
 4 dealer's intention [so] to do[.] so.  The notice shall contain
 
 5 the name of the dealer[,] and shall state the name of the
 
 6 security to be offered for sale, and whenever a dealer has
 
 7 prepared such notice and has forwarded the same by registered
 
 8 mail, postage prepaid, and properly addressed to the
 
 9 commissioner, such dealer, as to the contents of the notice and
 
10 the filing thereof, is deemed to have complied with the
 
11 requirements of this subsection.
 
12      (p)  Issuers as dealers.  Any issuer of a security required
 
13 to be registered under this chapter selling such securities
 
14 (other than in exempt transactions as defined in section 485-6),
 
15 and any issuer of an exempt security as defined in section 485-
 
16 4(9) and (10) offering such securities (other than (1) in exempt
 
17 transactions as defined in section 485-6, or (2) through a dealer
 
18 registered pursuant to this chapter) shall file with the
 
19 commissioner a bond or deposit securities or cash in an amount,
 
20 based on the total capitalization, to be determined by the
 
21 commissioner in the commissioner's discretion, which amount,
 
22 however, shall not be less than $5,000, nor more than $25,000,
 

 
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 1 subject also to the same conditions as herein prescribed in the
 
 2 case of dealers, and may appoint salespersons in the manner
 
 3 herein prescribed in the case of dealers.
 
 4      (q)  Capital requirement for dealers and investment advisers
 
 5 who have custody of or discretionary authority over client money,
 
 6 securities, or other assets.  Except as otherwise provided in
 
 7 this subsection, the commissioner may by rule require a minimum
 
 8 capital requirement for registered dealers which shall not be
 
 9 less than $5,000 in the case of dealers and prescribe a ratio
 
10 between net capital and aggregate indebtedness.  This subsection
 
11 shall not apply to any dealer that is registered under the
 
12 Securities Exchange Act of 1934.  The commissioner may by rule
 
13 require a net worth requirement which shall not be less than
 
14 $5,000 for investment advisers.  This subsection shall not apply
 
15 to any investment adviser that maintains its principal place of
 
16 business in a state other than this State; provided that the
 
17 investment adviser is registered in the state where it maintains
 
18 its principal place of business and is in compliance with that
 
19 state's net worth or net capital requirements, if any.
 
20      (r)  A registered broker dealer or investment adviser may
 
21 file an application for registration of a successor, whether or
 
22 not the successor is then in existence, for the unexpired portion
 

 
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 1 of the year.  There shall be no filing fee."
 
 2      SECTION 6.  Section 485-15, Hawaii Revised Statutes, is
 
 3 amended to read as follows:
 
 4      "§485-15  Denial, revocation, or suspension of dealers',
 
 5 investment advisers', salespersons', and investment adviser
 
 6 representatives' registration; suspension during investigation,
 
 7 etc.  Upon the finding of errors in a registration statement or
 
 8 the filing of complaints by consumers or by any government
 
 9 agency, the commissioner may conduct an investigation of the
 
10 applicant or registrant and [registration under section 485-14
 
11 may be refused or any registration granted may be revoked by the
 
12 commissioner of securities] the commissioner may deny an
 
13 application for registration, revoke or suspend any registration,
 
14 or limit or impose conditions on the securities activities that a
 
15 registrant may conduct in this State, if after [a] reasonable
 
16 notice and a hearing the commissioner determines that the
 
17 applicant or registrant [so registered]:
 
18      (1)  Has filed an application for registration which as of
 
19           its effective date, or as of any date after filing in
 
20           the case of an order denying effectiveness, was
 
21           incomplete in any material respect or contained any
 
22           statement which was, in light of the circumstances
 

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

 
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                                     S.B. NO.           
                                                        
                                                        


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

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

 
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 1           with; or
 
 2     (11)  Has demonstrated unworthiness to transact the business
 
 3           of dealer, investment adviser, salesperson, or
 
 4           investment adviser representative.
 
 5      In cases of charges against a salesperson or investment
 
 6 adviser representative notice thereof shall also be given the
 
 7 dealer or investment adviser employing such salesperson or
 
 8 investment adviser representative.  Pending the hearing, the
 
 9 commissioner may order the suspension of the dealer's, investment
 
10 adviser's, salesperson's, or investment adviser representative's
 
11 registration; provided the order states the cause for the
 
12 suspension.
 
13      Until the entry of a final order the suspension of the
 
14 dealer's or investment adviser's registration, though binding
 
15 upon the persons notified thereof, shall be deemed confidential,
 
16 and shall not be published, unless it appears that the order of
 
17 suspension has been violated after notice.
 
18      In the event the commissioner determines to refuse or revoke
 
19 a registration as [hereinabove] provided[,]in this section, the
 
20 commissioner shall enter a final order [herein] with the
 
21 commissioner's findings on the register of dealers, investment
 
22 advisers, salespersons, and investment adviser representatives;
 

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

 
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