2003 -- S 1122

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LC03390

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STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2003

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A N A C T

RELATING TO SECURITIES

     Introduced By: Senator Walter S. Felag

     Date Introduced: June 04, 2003

     Referred To: Senate Financial, Technology, Regulatory

It is enacted by the General Assembly as follows:

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

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

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

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

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

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include:

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     (i) A sales representative;

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

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

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     (iv) A depository institution if said depository institution is not considered a "broker" or

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"dealer" under section 3(a)(4) or 3(a)(5) of the Securities Exchange Act of 1934 (15 U.S.C. Sec.

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

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Commission under the Act.

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     (2) "Depository institution" means:

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

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

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

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

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

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

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

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state or the United States; and

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

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

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

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

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

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

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section 80b-3; or

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

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

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

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

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promulgated under that section.

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

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

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

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itself or another in a fiduciary capacity:

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      (i) A depository institution;

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      (ii) An insurance company;

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      (iii) A separate account of an insurance company;

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

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

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

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

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

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

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

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

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institution, or an insurance company; and

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      (vi) Any other institutional buyer.

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

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

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all or substantially all of principal and interest or dividends.

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

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substantially all of principal and interest or dividends.

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

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

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

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

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concerning securities. "Investment adviser" does not include:

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      (i) An investment adviser representative;

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

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

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

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

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

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compensation for the investment advisory services;

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

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

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

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specific investment situation of each client;

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

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section 7-11-401(1);

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

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

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

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

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

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

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chapter and who does any of the following:

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

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clients;

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      (II) Manages accounts or portfolios of clients;

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

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

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

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

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

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rule or order.

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

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

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

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

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Securities and Exchange Commission.

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

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person who issues or proposes to issue a security.

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

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

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

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

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issued.

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

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

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or is to be leased or conditionally sold.

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

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

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

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

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

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of the issuer.

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

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

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

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

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

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

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

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

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

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purposes of this chapter.

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

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

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

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

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

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      (18) "Promoter" includes:

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

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

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

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

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

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

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does not possess the indicia of arms length bargaining; and

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

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

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

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transaction does not possess the indicia of arms length bargaining.

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

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

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

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

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

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

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

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section 78n(d).

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

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

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been offered and sold for value.

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

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

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

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

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include an offer of the other security.

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

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

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

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

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

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dividend in cash, property, or stock; or

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      (C) an act incident to a judicially approved reorganization in which a security is issued in

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

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exchange and partly for cash.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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some other specified period; or

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

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

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

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

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

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

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

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

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78o-4(b)(1).

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

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

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

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

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this chapter or any rule or order under this chapter.

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     SECTION 2. This act shall take effect upon passage.

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LC03390

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N A C T

RELATING TO SECURITIES

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     This act would conform the Rhode Island Uniform Securities Act to the original Uniform

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Securities Act of 1985.

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     This act would take effect upon passage.

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LC03390

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