23.8093.01000
Sixty-eighth
Legislative Assembly SENATE BILL NO. 2060
of North Dakota
Introduced by
Industry and Business Committee
(At the request of the Securities Commissioner)
1 A BILL for an Act to create and enact subsection 7 of section 10-04-07.2 of the North Dakota
2 Century Code, relating to fees of an effective offering; and to amend and reenact subsection 17
3 of section 10-04-06, subsection 5 of section 10-04-08.4, sections 10-04-10, 10-04-10.1, and
4 10-04-10.3, subsection 1 of section 10-04-16, and subsection 1 of section 10-04-16.1 of the
5 North Dakota Century Code, relating to exempt transaction filling requirements, federal
6 crowdfunding, investment advisors' custody, postregistration recordkeeping, effectiveness of
7 orders, and professional services for investigations.
8 BE IT ENACTED BY THE LEGISLATIVE ASSEMBLY OF NORTH DAKOTA:
9 SECTION 1. AMENDMENT. Subsection 17 of section 10-04-06 of the North Dakota
10 Century Code is amended and reenacted as follows:
11 17. Any offer or sale of a security by an issuer in a transaction provided all of the following
12 conditions are met:
13 a. Sales of securities may be made only to persons who are, or the issuer
14 reasonably believes are, accredited investors as defined in 17 CFR 230.501(a)
15 promulgated by the securities and exchange commission.
16 b. The exemption is not available to an issuer that is in the development stage that
17 either has no specific business plan or purpose or has indicated that its business
18 plan is to engage in a merger or acquisition with an unidentified company or
19 companies, or other entity or person.
20 c. The issuer reasonably believes that all purchasers are purchasing for investment
21 and not with the view to, or for, sale in connection with a distribution of the
22 security. Any resale of a security sold in reliance of this exemption within twelve
23 months of sale must be presumed to be with a view to distribution and not for
24 investment, except a resale pursuant to a registration statement effective under
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1 section 10-04-04 or to an accredited investor pursuant to an exemption available
2 under subsection 5.
3 d. (1) The exemption is not available to an issuer if the issuer, any of the issuer's
4 predecessors, any affiliated issuer, any of the issuer's directors, officers,
5 general partners, beneficial owners of ten percent or more of any class of its
6 equity securities, any of the issuer's promoters presently connected with the
7 issuer in any capacity, any underwriter of the securities to be offered, or any
8 partner, director, or officer of such underwriter:
9 (a) Within the last five years, has filed a registration statement that is the
10 subject of a currently effective registration stop order entered by any
11 state securities administrator or the securities and exchange
12 commission;
13 (b) Within the last five years, has been convicted of any criminal offense
14 in connection with the offer, purchase, or sale of any security, or
15 involving fraud or deceit;
16 (c) Is currently subject to any state or federal administrative enforcement
17 order or judgment, entered within the last five years, finding fraud or
18 deceit in connection with the purchase or sale of any security; or
19 (d) Is currently subject to any order, judgment, or decree of any court of
20 competent jurisdiction, entered within the last five years, temporarily,
21 preliminarily, or permanently restraining or enjoining such party from
22 engaging in or continuing to engage in any conduct or practice
23 involving fraud or deceit in connection with the purchase or sale of
24 any security.
25 (2) Paragraph 1 does not apply if:
26 (a) The party subject to the disqualification is licensed or registered to
27 conduct securities-related business in the state in which the order,
28 judgment, or decree creating the disqualification was entered against
29 such party;
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1 (b) Before the first offer under this exemption, the state securities
2 administrator, or the court or regulatory authority that entered the
3 order, judgment, or decree, waives the disqualification; or
4 (c) The issuer establishes that it did not know and in the exercise of
5 reasonable care, based on a factual inquiry, could not have known
6 that a disqualification existed under this subdivision.
7 e. (1) A general announcement of the proposed offering may be made by any
8 means.
9 (2) The general announcement must include only the following information,
10 unless additional information is specifically permitted by the commissioner:
11 (a) The name, address, and telephone number of the issuer of the
12 securities;
13 (b) The name, a brief description, and price, if known, of any security to
14 be issued;
15 (c) A brief description of the business of the issuer in twenty-five words or
16 less;
17 (d) The type, number, and aggregate amount of securities being offered;
18 (e) The name, address, and telephone number of the person to contact
19 for additional information; and
20 (f) A statement that:
21 [1] Sales will only be made to accredited investors;
22 [2] No money or other consideration is being solicited or will be
23 accepted by way of this general announcement; and
24 [3] The securities have not been registered with or approved by any
25 state securities agency or the securities and exchange
26 commission and are being offered and sold pursuant to an
27 exemption from registration.
28 f. The issuer, in connection with an offer, may provide information in addition to the
29 general announcement under subdivision e, if such information:
30 (1) Is delivered through an electronic database that is restricted to persons who
31 have been prequalified as accredited investors; or
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1 (2) Is delivered after the issuer reasonably believes that the prospective
2 purchaser is an accredited investor.
3 g. Telephone solicitation is not permitted unless prior to placing the call, the issuer
4 reasonably believes that the prospective purchaser to be solicited is an
5 accredited investor.
6 h. Dissemination of the general announcement of the proposed offering to persons
7 who are not accredited investors does not disqualify the issuer from claiming the
8 exemption.
9 i. The issuer shall file with the department a notice of transaction, a consent to
10 service of process, a copy of the general announcement, and a nonrefundable
11 filing fee of one hundred dollars within fifteen days after the first sale in this state.
12 In the event the filing is not made within fifteen days after the first sale in this
13 state, the filing fee is two hundred fifty dollars.
14 j. The security offered or sold under this subsection is offered or sold by a
15 broker-dealer and agent registered in accordance with section 10-04-10, or
16 offered and sold through an officer, director, governor, or partner of the issuer and
17 no commission or other remuneration is paid.
18 SECTION 2. Subsection 7 of section 10-04-07.2 of the North Dakota Century Code is
19 created and enacted as follows:
20 7. An applicant may increase the aggregate amount of each security or class of security
21 to be registered by filing a notice of the additional aggregate dollar amount to be
22 registered and payment of a filing fee of one-tenth of one percent of the additional
23 aggregate dollar amount but not more than five hundred dollars.
24 SECTION 3. AMENDMENT. Subsection 5 of section 10-04-08.4 of the North Dakota
25 Century Code is amended and reenacted as follows:
26 5. a. The following provisions apply to offerings made under federal Regulation
27 Crowdfunding [17 CFR 227] and sections 4(a)(6) and 18(b)(4)(C) of the Securities Act
28 of 1933 [15 U.S.C. 77d(a)(b) and 15 U.S.C. 77r(b)(4)(C)]:
29 (1)a.(a)(1) An issuer that offers and sells securities in this state in an offering exempt
30 under federal Regulation Crowdfunding [17 CFR 227], and that either has
31 the issuer's principal place of business in this state or sells fifty percent or
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1 greater of the aggregate amount of the offering to residents of this state,
2 shall file electronically the following with the commissioner:
3 [1](a) A completed uniform notice of federal crowdfunding offering form;
4 [2](b) A copy of any document filed with the securities and exchange
5 commission, as the commissioner may require; and
6 [3](c) A filing fee of one hundred fifty dollars.
7 (b)(2) If the issuer has the issuer's principal place of business in this state, the
8 filing required under this subsection must be filed with the commissioner
9 when the issuer makes its initial form C filing concerning the offering with
10 the securities and exchange commission. If the issuer does not have the
11 issuer's principal place of business in this state but residents of this state
12 have purchased fifty percent or greater of the aggregate amount of the
13 offering, the filing required under this subsection must be filed when the
14 issuer becomes aware that such purchases have met this threshold and in
15 no event later than thirty days from the date of completion of the offering.
16 The initial notice filing is effective for twelve months from the date of the
17 filing with this state.
18 (2)b. An issuer conducting an offering under this subsection may renew the offering for
19 an additional period of twelve months by electronically filing the uniform notice of
20 federal crowdfunding offering form marked "renewal" and payment of the renewal
21 filing fee of one hundred dollars.
22 b. A security may not be offered or sold under this subsection, except through or by
23 a broker-dealer and agent registered in accordance with section 10-04-10, unless
24 the security is offered and sold through an officer, director, governor, or partner of
25 the issuer and no commission or other remuneration is paid, either directly or
26 indirectly.
27 SECTION 4. AMENDMENT. Section 10-04-10 of the North Dakota Century Code is
28 amended and reenacted as follows:
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1 10-04-10. Registration of broker-dealers, agents, investment advisers, and
2 investment adviser representatives - Notice filings by federal covered advisers.
3 1. Broker-dealers. It is unlawful for a person to transact business in this state as a
4 broker-dealer unless the person is registered under this chapter as a broker-dealer or
5 is exempt. The following persons are exempt from the registration requirements:
6 a. A broker-dealer without a place of business in this state if its only transactions
7 effected in this state are with:
8 (1) The issuer of the securities involved in the transactions;
9 (2) A broker-dealer registered as a broker-dealer under this chapter or not
10 required to be registered as a broker-dealer under this chapter;
11 (3) An institutional investor;
12 (4) A nonaffiliated federal covered investment adviser with investments under
13 management in excess of one hundred million dollars acting for the account
14 of others pursuant to discretionary authority in a signed record;
15 (5) A bona fide pre-existing customer whose principal place of residence is not
16 in this state and the person is registered as a broker-dealer under the
17 Securities Exchange Act of 1934 or not required to be registered under the
18 Securities Exchange Act of 1934 and is registered under the securities laws
19 of the state in which the customer maintains a principal place of residence;
20 and
21 (6) A bona fide pre-existing customer whose principal place of residence is in
22 this state but was not present in this state when the customer relationship
23 was established, if:
24 (a) The broker-dealer is registered under the Securities Exchange Act of
25 1934 or not required to be registered under the Securities Exchange
26 Act of 1934 and is registered under the securities laws of the state in
27 which the customer relationship was established and where the
28 customer had maintained a principal place of residence; and
29 (b) Within thirty days after the customer's first transaction in this state, the
30 person files an application for registration as a broker-dealer in this
31 state and a further transaction is not effected more than forty-five days
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1 after the date on which the application is filed, or, if earlier, the date on
2 which the commissioner notifies the person that the commissioner has
3 denied the application for registration or has stayed the pendency of
4 the application for good cause.
5 b. A person that deals solely in United States government securities and is
6 supervised as a broker-dealer in government securities by the board of governors
7 of the federal reserve system, the comptroller of the currency, the federal deposit
8 insurance corporation, or the office of thrift supervision.
9 Application for registration as a broker-dealer must be made in writing or
10 electronically in a form prescribed by the commissioner, must be signed by the
11 applicant, duly verified by oath, must be filed with the department, and must contain
12 information the commissioner determines to be necessary concerning the applicant.
13 The commissioner may also require such additional information relating to the
14 applicant and as to the previous history, record, or association of the applicant, its
15 officers, directors, employees, members, partners, managers, or trustees as the
16 commissioner deems necessary to establish whether or not the applicant should be
17 registered as a broker-dealer under the provisions of this law.
18 There must be filed with such application a written consent to the service of
19 process upon the commissioner in actions against such broker-dealer, conforming to
20 the requirements of section 10-04-14.
21 When an applicant has fully complied with the provisions of this subsection, the
22 commissioner may register such applicant as a broker-dealer unless the commissioner
23 finds that the applicant