Chapter363

Chapter 363

2003 -- S 1122 SUBSTITUTE A AS AMENDED

Enacted 07/17/03

AN ACT

RELATING TO SECURITIES

Introduced By: Senator Walter S. Felag

Date Introduced: June 04, 2003

It is enacted by the General Assembly as follows:

SECTION 1. Section 7-11-101 of the General Laws in Chapter 7-11 entitled "Rhode

Island Uniform Securities Act" is hereby amended to read as follows:

7-11-101. Definitions. -- In this chapter:

(1) "Broker dealer" means a person engaged in the business of effecting transactions in

securities for the account of others or for the person's own account. "Broker dealer" does not

include:

(i) A sales representative;

(ii) An issuer, except when effecting transactions other than as to its own securities; ~~and~~

(iii) Any other person that the director, by rule or order, designates.; or

(iv) A depository institution if said depository institution is not considered to be a

"broker" or "dealer" within the meaning of the Securities Exchange Act of 1934 (15 U.S.C. Secs.

78C(a)(4) and (5)) or any regulation or rule adopted by the Securities and Exchange Commission

under the Act (the "Act") because the depository institution engages in any one or more of the

activities described in the following provisions of the Act, under the conditions set forth in:

(a) Sections 3(a)(4)(B)(i) through (vi);

(b) Section 3(a)(4)(B)(vii), so long as the depository institution is a regulated financial

institution as defined in section 19-1-1(11) and the offer and sale is made to a sophisticated or

institutional investor;

(d) Section 3(a)(4)(B)(xi), if limited to unsolicited transactions; or

(e) Section 3(a)(5)(C).

(2) "Depository institution" means:

(i) A person which is organized, chartered, or holding an authorization certificate under

the laws of a state or of the United States which authorizes the person to receive deposits,

including a savings, share, certificate, or deposit account, and which is supervised and examined

for the protection of depositors by an official or agency of a state or the United States;

(ii) A trust company or other institution that is authorized by federal or state law to

exercise fiduciary powers of the type a national bank is permitted to exercise under the authority

of the comptroller of the currency and is supervised and examined by an official or agency of a

state or the United States; and

(iii) "Depository institution" does not include an insurance company or other

organization primarily engaged in the insurance business, or a Morris plan bank, industrial loan

company, or a similar bank or company unless its deposits are insured by a federal agency.

(3) "Director" means the director of the department of business regulation.

(4) "Federal covered adviser" means a person who is:

(i) Registered under section 203 of the Investment Advisers Act of 1940,15 U.S.C.

section 80b-3; or

(ii) Is excluded from the definition of "investment adviser" under section 202(a)(11) of

the Investment Advisers Act of 1940, 15 U.S.C. section 80b-1(a)(11).

(5) "Federal covered security" means any security that is a covered security under

section 18(b) of the Securities Act of 1933, 15 U.S.C. section 77r(b), or rules or regulations

promulgated under that section.

(6) "Filed" means the actual delivery of a document or application to the director or

designee of the director or to the principal office of the director.

(7) "Financial or institutional investor" means any of the following, whether acting for

itself or another in a fiduciary capacity:

(i) A depository institution;

(ii) An insurance company;

(iii) A separate account of an insurance company;

(iv) An investment company as defined in the Investment Company Act of 1940, 15

U.S.C. section 80a-1 et seq.;

(v) An employee pension, profit sharing or benefit plan if the plan has total assets in

excess of five million dollars ($5,000,000), or if investment decisions are made by a plan

fiduciary, as defined in the Employee Retirement Income Security Act of 1974, 29 U.S.C. section

1001 et seq., which is either a broker dealer registered under the Securities Exchange Act of

1934, 15 U.S.C. section 78a et seq., an investment adviser registered or exempt from registration

under the Investment Advisers Act of 1940, 15 U.S.C. section 80b-1 et seq., a depository

institution, or an insurance company; and

(vi) Any other institutional buyer.

(8) "Fraud", "deceit", and "defraud" are not limited to common law fraud or deceit.

(9) For purposes of section 7-11-401, "guaranteed" means guaranteed as to payment of

all or substantially all of principal and interest or dividends.

(10) For purposes of section 7-11-401, "insured" means insured as to payment of all or

substantially all of principal and interest or dividends.

(11) "Investment adviser" means a person who, for compensation, engages in the

business of advising others, either directly or through publications or writings, as to the value of

securities or as to the advisability of investing in, purchasing, or selling securities, or who, for

compensation and as part of a regular business, issues or promulgates analyses or reports

concerning securities. "Investment adviser" does not include:

(i) An investment adviser representative;

(ii) A trust company or other institution described in subdivision (2)(ii) of this section;

(iii) A lawyer, accountant, engineer, or teacher whose performance of investment

advisory services is solely incidental to the practice of the person's profession;

(iv) A broker dealer or its agent whose performance of investment advisory services is

solely incidental to the conduct of business as a broker dealer and who receives no special

compensation for the investment advisory services;

(v) A publisher of any bona fide newspaper, news column, newsletter, news magazine,

or business or financial publication or service, whether communicated in hard copy form, or by

electronic means, or otherwise, that does not consist of the rendering of advice on the basis of the

specific investment situation of each client;

(vi) A person whose advice, analyses, or reports relate only to securities exempt under

section 7-11-401(1);

(vii) Any person as the director, by rule or order, designates; and

(viii) A person who is a federal covered adviser.

(12) (i) "Investment adviser representative" means any partner, officer, director of (or a

person occupying a similar status or performing similar functions) or other individual, except

clerical or ministerial personnel, who is employed by or associated with;

(A) An investment adviser that is registered or required to be registered under this

chapter and who does any of the following:

(I) Makes any recommendations or otherwise renders advice regarding securities to

clients;

(II) Manages accounts or portfolios of clients;

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

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

(V) Supervises employees who perform any of the preceding; or

(B) A federal covered adviser, subject to the limitations of sections 203(A) of the

Investment Advisors Act of 1940, 15 U.S.C. section 80b-3(A), as the director may designate by

rule or order.

(ii) Notwithstanding subdivisions (12)(i)(A) and (12)(i)(B), an investment adviser

representative shall not include any other persons employed by or associated with either an

investment adviser or a federal covered adviser not within the intent of subdivision (12) that the

director may designate by rule or order or as otherwise specifically excluded by rule of the U.S.

Securities and Exchange Commission.

(13) (i) Except as provided in subdivisions (13)(ii) through (13)(iv), "issuer" means a

person who issues or proposes to issue a security.

(ii) The "issuer" of a collateral trust certificate, voting trust certificate, certificate of

deposit for a security, or share in an investment company without a board of directors or persons

performing similar functions, is a person performing the acts and assuming the duties of depositor

or manager pursuant to the trust or other agreement or instrument under which the security is

issued.

(iii) The "issuer" of an equipment trust certificate, including a conditional sales contract

or similar security serving the same purpose, is the person to whom the equipment or property is

or is to be leased or conditionally sold.

(iv) The "issuer" of a fractional undivided interest to an oil, gas, or other mineral lease or

in payments out of production under a lease, right, or royalty, is the owner of an interest in the

lease or in payments out of production under a lease, right, or royalty, whether whole or

fractional, who creates fractional interest for the purpose of sale.

(14) "Nonissuer transaction" means a transaction not directly or indirectly for the benefit

of the issuer.

(15) "Person" means a natural person, corporation, business trust, estate, trust,

partnership, association, joint venture, government in its private or public capacity, governmental

subdivision or agency, or any other legal or commercial entity.

(16) "Person associated with" a named party or parties or "associated person of" a named

party or parties means any partner, officer, director, or branch manager of the named party or

parties (or any person occupying a similar status or performing similar functions), any person

directly or indirectly controlling, controlled by, or under common control with the named party or

parties or any employee of the named party or parties, except that any associated person whose

functions are solely clerical or ministerial are not included in the meaning of the term for

purposes of this chapter.

(17) "Price amendment" means the amendment to a registration statement filed under the

Securities Act of 1933, 15 U.S.C. section 77a et seq., or, if no amendment is filed, the prospectus

or prospectus supplement filed under the Securities Act of 1933, which includes a statement of

the offering price, underwriting and selling discounts or commissions, amounts of proceeds,

conversion rates, call prices, and other matters dependent on the offering price.

(18) "Promoter" includes:

(i) A person who, acting alone or in concert with one or more other persons, takes the

entrepreneurial initiative in founding or organizing the business or enterprise of an issuer;

(ii) An officer or director owning securities of an issuer or a person who owns,

beneficially or of record, ten percent (10%) or more of a class of securities of the issuer if the

officer, director, or person acquires any of those securities in a transaction within three (3) years

before the filing by the issuer of a registration statement under this chapter and the transaction

does not possess the indicia of arms length bargaining; and

(iii) A member of the immediate family of a person within subparagraph (i) or (ii) if the

family member receives securities of the issuer from that person in a transaction within three (3)

years before the filing by the issuer of a registration statement under this chapter and the

transaction does not possess the indicia of arms length bargaining.

(19) (i) "Sale" or "sell" includes every contract of sale, contract to sell, or other

disposition, of a security or interest in a security for value.

(ii) "Offer to sell" includes every attempt to offer to dispose of, or solicitation of an offer

to purchase, a security or interest in a security for value.

(iii) "Offer to purchase" includes every attempt or offer to obtain, or solicitation of an

offer to sell, a security or interest in a security for value, but the term does not include a

transaction that is subject to section 14(d) of the Securities Exchange Act of 1934, 15 U.S.C.

section 78n(d).

(iv) A security given or delivered with or as a bonus on account of a purchase of

securities or other item is considered to constitute part of the subject of the purchase and to have

been offered and sold for value.

(v) A gift of assessable stock is deemed to involve an offer and sale.

(vi) A sale or offer of a warrant or right to purchase or subscribe to another security of

the same or another issuer, or a sale or offer of a security that gives the holder a present or future

right or privilege to convert into another security of the same or another issuer, is deemed to

include an offer of the other security.

(vii) The terms defined in this paragraph do not include:

(A) the creation of a security interest or a loan;

(B) a stock dividend, whether or not the corporation distributing the dividend is the

issuer of the stock, if nothing of value is given by stockholders for the dividend other than the

surrender of a right to a cash or property dividend and each stockholder may elect to take the

dividend in cash, property, or stock; or

exchange for one or more outstanding securities, claims, or property interests, or partly in

exchange and partly for cash.

(20) "Sales representative" means a person, other than a broker dealer, associated with a

broker dealer or issuer in effecting or attempting to effect purchases or sales of securities.

(21) "Securities Act of 1933", 15 U.S.C. section 77a et seq., "Securities Exchange Act of

1934", 15 U.S.C. section 78a et seq., "Public Utility Holding Company Act of 1935", 15 U.S.C.

section 79 et seq., "Investment Company Act of 1940", 15 U.S.C. section 80a-1 et seq.,

"Investment Advisers Act of 1940", 15 U.S.C. section 80b-1 et seq., "Employee Retirement

Income Security Act of 1974", 29 U.S.C. section 1001 et seq., "National Housing Act", 12 U.S.C.

section 1701 et seq., and "Commodity Exchange Act", 7 U.S.C. section 2 et seq., mean the

federal statutes of those names as amended before or after July 6, 1990.

(22) Unless the context requires otherwise, "security" means a note; stock; treasury

stock; bond; debenture; evidence of indebtedness; certificate of interest or participation in a profit

sharing agreement; a limited partnership interest; collateral trust certificate; variable annuity;

preorganization certificate or subscription; transferable share; investment contract; voting trust

certificate; certificate of deposit for a security; fractional undivided interest in an oil, gas, or other

mineral lease or in payments out of production under a lease, right, or royalty; a put, call,

straddle, or option entered into on a national securities exchange relating to foreign currency; a

put, call, straddle, or option on a security, certificate of deposit, or group or index of securities,

including an interest in or based on the value of any of the preceding; or, in general, an interest or

instrument commonly known as a "security", or a certificate of interest or participation in,

temporary or interim certificate for, receipt for, whole or partial guarantee of, or warrant or right

to subscribe to or purchase, any of the preceding. The term does not include:

(i) An insurance or endowment policy or annuity contract under which an insurance

company promises to pay a fixed sum of money either in a lump sum or periodically for life or

some other specified period; or

(ii) An interest in a contributory or noncontributory pension or welfare plan subject to

the Employee Retirement Income Security Act of 1974, 29 U.S.C. section 1001 et seq.

(23) "Self regulatory organization" means a national securities exchange registered under

section 7 of the Securities Exchange Act of 1934, 15 U.S.C. section 78g, a national securities

association of brokers and dealers registered under section 15A of the Securities Exchange Act of

1934, 15 U.S.C. section 78o-3, a clearing agency registered under section 17A of the Securities

Exchange Act of 1934, 15 U.S.C. section 78k-1, or the municipal securities rule making board

established under section 15B(b)(1) of the Securities Exchange Act of 1934, 15 U.S.C. section

78o-4(b)(1).

(24) "State" means a state, commonwealth, territory, or possession of the United States,

including both the District of Columbia and the Commonwealth of Puerto Rico.

(25) "Willfully" means intentionally committing the act which constitutes a violation;

there being no requirement that the actor also be aware that he or she is violating any provision of

this chapter or any rule or order under this chapter.

SECTION 2. This act shall take effect upon passage.

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LC03390/SUB A

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