This bill makes various changes and additions to the Tennessee Securities Act of 1980 and the Tennessee Insurance Producer Licensing Act of 2002.
INVESTMENT ADVISORS AND INVESTMENT ADVISOR REPRESENTATIVES
Present law prohibits any person from transacting business from, in, or into this state as an investment adviser or investment adviser representative unless:
(1) The person is registered as an investment adviser or investment adviser representative under present law;
(2) The person is required to register as an investment adviser pursuant to the Investment Advisers Act of 1940; provided, however, such person is required to provide an initial notice filing, a consent to service of process, and payment of certain fees and costs; or
(3) The person's only clients in this state are insurance companies.
Subject to various exceptions, present law defines "investment adviser" to mean any 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, buying, or selling securities, or who for compensation and as a part of a regular business issues or promulgates analyses or reports concerning securities. This bill adds that "investment advisor includes" a financial planner or other person who, as an integral component of other financially related services, provides investment advice to others for compensation as part of a business or who holds oneself out as providing investment advice to others for compensation.
Presently law defines "investment adviser representative" as any partner, officer, or director of (or person occupying a similar status or performing similar functions) an investment adviser, or other individual, except clerical or ministerial personnel, who is employed by or associated with an investment adviser and does any of the following:
(1) Makes any recommendation or otherwise renders advice regarding securities;
(2) Manages accounts or portfolios of clients;
(3) Determines which recommendation or advice regarding securities should be given;
(4) Solicits, offers, or negotiates for sale of or sells investment advisory services; or
(5) Supervises employees who perform any such actions.
This bill adds that "investment adviser representative" includes any partner, officer, or director of (or person occupying a similar status or performing similar functions) an investment adviser, or other individual, except clerical or ministerial personnel, who is employed by or associated with an investment adviser and provides investment advice or holds oneself out as providing investment advice.
EXEMPTIONS FROM SECURITIES REGISTRATION REQUIREMENT
Under present law, it is generally unlawful for a person to sell a security in this state unless it is registered, or it is a covered security under the Securities Act of 1933. However, certain securities and transactions are exempted from the registration requirement and the requirements for filing sales and advertising literature and designating the commissioner as an agent for service of process. Two of the 32 such exemptions listed in present law are:
(1) Any security issued by a person that meets the following requirements:
(A) The sale of the security must meet the requirements of the federal exemption for intrastate offerings in either the Securities Act of 1933 or the code of federal regulations;
(B) The sum of all cash and other consideration to be received for all sales of the security in reliance upon this law must not exceed $1 million less the aggregate amount received for all sales of securities by the issuer within the 12 months before the first offer;
(C) The issuer shall not accept more than $10,000 from an investor unless the investor is an accredited investor pursuant to the code of federal regulations;
(D) All funds received from the sale of a security in reliance upon this law must be deposited in a bank or depository institution authorized to do business in this state, and all funds received from buyers of a security in reliance upon this law must be used consistent with written representations made by the issuer to investors;
(E) Before offering to sell any security, the issuer must provide a notice to the commissioner in writing or in electronic form; the notice must specify that the issuer will offer or has sold the security in reliance upon this law and must include the names and addresses of the following:
(i) The issuer;
(ii) All persons who will sell or offer to sell the security on behalf of the issuer; and
(iii) The bank or depository institution in which proceeds from the sale of the security will be deposited;
(F) The issuer must not be, either before or as a result of the offering, an investment company as defined in the Investment Company Act of 1940 or subject to the reporting requirements of the Securities Exchange Act of 1934; and
(G) The issuer must inform all buyers prior to the sale of a security that falls within this exemption that the security has not been registered, and with respect to issuers utilizing the code of federal regulations, the issuer must also inform all buyers that the security is subject to the limitation on resales contained in the code of federal regulations; and
(2) Generally, any transaction involving the issuance of a security:
(A) In connection with a stock bonus plan requiring payment of no consideration other than services;
(B) In connection with a stock bonus, pension, profit sharing, savings, thrift, or retirement plan for employees, self-employed individuals, or individual retirement accounts qualified under the Internal Revenue Code of 1954, as amended; or
(C) In connection with a transaction that meets the following requirements:
(i) The offering meets the requirements of the regulations under the Securities Act of 1933, as amended;
(ii) The offering is exempt from the Securities Act of 1933, as amended; and
(iii) The issuer files with the commissioner no later than 15 days after the first sale in this state a notice of transaction, on a form adopted by the commissioner, accompanied by a consent to service of process, and a nonrefundable filing fee of $500.
This bill changes the exemptions described in (1) and (2) as follows:
(1) (1)(B), by increasing from $1 million to $5 million, the maximum sum of all cash and other consideration to be received for all sales of the security in reliance upon this law, less the aggregate amount received for all sales of securities by the issuer within the 12 months before the first offer, and by adding that the commissioner may, by rule, require a sales report in a designated format;
(2) (1)(D), by adding a trust company to the list of depository institution options where all funds received from the sale of a security in reliance upon this law must be deposited;
(3) (1)(E)(iii), by adding that if the proceeds from the sale of the security are deposited in a trust company, then the name of the trust company must be included in the notice to the commissioner; and
(4) Exemption (2), by deleting requirement (C)(iii).
REGISTRATION
This bill deletes present law authorization for the commissioner to require an applicant for initial registration to publish an announcement of the application in one or more specified newspapers published in this state.
This bill authorizes the commissioner to:
(1) Require, by rule and at the applicant's expense, an agent or investment adviser representative applicant to submit a complete and legible set of fingerprints, in a format prescribed by the commissioner, to the commissioner or to the TBI, for the purpose of obtaining a criminal background check from the TBI or the FBI;
(2) Conduct a criminal background check of each applicant described in (1) by using certain information that is provided by the applicant and made available to the commissioner by a law enforcement agency;
(3) Enter into an agreement with the TBI to administer a criminal background check authorized under this bill; and
(4) Authorize the TBI to collect from the applicant the costs incurred by the department in conducting the criminal background check.
To determine eligibility for registration, this bill authorizes the commissioner to require by rule:
(1) Evidence of the qualifications and business history of the applicant and, if appropriate, the qualifications and business history of an affiliate, partner, officer, director, or other person occupying a similar status or performing similar functions for the applicant;
(2) Evidence of the applicant's injunctions, administrative orders, or misdemeanor convictions involving a security or an aspect of the securities business, if any, and the applicant's felony convictions, if any; and
(3) Evidence of the applicant's financial condition and history.
Present law requires registration as an issuer-dealer to be effective 30 days after receipt of a completed application and the appropriate fee, if any, unless denial proceedings are instituted or unless an earlier effective date is granted by order of the commissioner. The registration may be denied, revoked, or suspended if such action is in the public interest and if the applicant or any affiliate, partner, officer, director, or any person occupying a similar status or performing similar functions:
(1) Has filed an application for registration which included any untrue statement of a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading;
(2) Has been convicted within the past 10 years of any misdemeanor involving any aspect of the securities business or an investment-related business, or any felony;
(3) Is permanently or temporarily enjoined by any court of competent jurisdiction from engaging in or continuing any conduct or practice involving any aspect of the securities business or any investment-related business; or
(4) Is the subject of any order entered within the past 10 years by any agency of any jurisdiction having regulatory authority with respect to the securities business or any investment-related business, denying, revoking, or suspending a registration as a broker-dealer, agent, investment adviser, or the substantial equivalent of those terms as defined in the Tennessee Securities Act of 1980, or ordering such person to cease and desist from continuing any conduct or practice involving any investment-related transaction based on fraud, deceit, or misrepresentation, or applicable law similar to certain provisions prohibiting fraud.
This bill alters the above requirement by:
(1) Changing the time that registration as an issue-dealer becomes effective from 30 days after receipt of a completed application to 12 noon, CST, of the 30th day after the department receives the completed application; and
(2) Adding investment adviser representative and issue-dealer to the list of persons in (4) subject to an order within the past 10 years by an agency having regulatory authority with respect to the securities business or investment-related business, denying, revoking, or suspending a registration.
RECORDS
Present law requires registered broker-dealers and investment advisers to keep various records, which are subject to inspection by the commissioner. This bill specifies that all working papers, recorded information, documents, and required records and copies of working papers, recorded information, documents, and required records produced by, obtained by, or disclosed to the commissioner or another person in the course of an examination made under this law are confidential and are prohibited from being made public by the commissioner or another person. However, such confidentiality does not prohibit the commissioner from disclosing the content of an examination while working in cooperation with the securities administrators of other states, the securities and exchange commission, any national securities exchange or national securities association registered under the Securities Exchange Act of 1934, or any securities administrators' association.
ADMINISTRATIVE DISCIPLINE
This adds to the commissioner's disciplinary authority, authorization to bar or censure a registrant or an officer, director, partner, or other person occupying a similar status or performing similar functions for a registrant, or restrict, condition, or limit a registrant as to a function or activity of the business for which registration is required in this state.
This bill authorizes the commissioner to enter an order of restitution, disgorgement, including interest and legal interest, or rescission, directed to a person who has violated state law concerning securities. This bill specifies that restitution, disgorgement, or rescission is in addition to any other remedy or penalty provided by law.
LATE FILING FEE
This bill specifies that the following are subject to a late filing fee, as established by the commissioner:
(1) An initial notice filing received more than 30 days after the date of first sale;
(2) An initial notice filing received more than one year from the date of the first sale; or
(3) A late filed renewal notice.
EXPUNGEMENT
This bill generally requires a broker-dealer or agent registered in this state who seeks to expunge information from the Central Registration Depository (CRD) system through the Financial Industry Regulatory Authority (FINRA) expungement process to name the department as a party to the expungement proceedings and serve the commissioner with all filings and other appropriate documents. However, upon request of the party seeking expungement, the commissioner may waive the obligation of the broker-dealer or agent registered in this state to name the department as a party to the expungement proceedings if the commissioner determines that:
(1) The expungement relief is based on affirmative judicial or arbitral findings that:
(A) The claim, allegation, or information is factually impossible, false, or clearly erroneous; or
(B) The registered person did not perform or aid, abet, counsel, command, induce, conspire with, or fail to reasonably supervise another in performing the alleged investment-related sales practice violation, forgery, theft, misappropriation, or conversion of funds; or
(2)
(A) The expungement relief is based on judicial or arbitral findings, other than those described in (1)(A) or (1)(B);
(B) The expungement relief and accompanying findings on which the relief is based are meritorious; and
(C) The expungement would have no material adverse effect on investor protection, the integrity of the Web CRD system, or regulatory requirements.
For purposes of this bill "sales practice violation" means conduct directed at or involving a customer that would constitute a violation of:
(1) The rules for which a person could be disciplined by a self-regulatory organization;
(2) A provision of the federal Securities Exchange Act of 1934; or
(3) A state statute prohibiting fraudulent conduct in connection with the offer, sale, or purchase of a security, or in connection with the rendering of investment advice.
TENNESSEE INSURANCE PRODUCER LICENSING ACT
Present law requires:
(1) Any investigation initiated under the Tennessee Insurance Producer Licensing Act of 2002 to be completed within two years of receiving a complaint, or the entry of an inquisitorial order, whichever comes first; and
(2) Any investigation initiated prior to July 1, 2011, to be completed or closed, or a contested case action to be filed as of July 1, 2013.
This bill changes (1) so that an investigation must only be completed within two years of entry of an inquisitorial order, and deletes (2).
ON MARCH 6, 2023, THE SENATE ADOPTED AMENDMENT #1 AND PASSED SENATE BILL 238, AS AMENDED.
AMENDMENT #1 revises the bill make the following changes:
(1) To require, instead of authorize, the commissioner to conduct a fingerprint-based criminal history check on each applicant and to enter into an agreement with the TBI to administer the fingerprint-based criminal history checks;
(2) To delete the bills' provisions concerning expungement and instead require that, prior to initiating a proceeding as described below, a broker-dealer or an agent with a principal place of business, branch office, or other business location in this state must do the following:
(A) Provide the department written notice at least 60 days prior to filing to vacate, modify, or confirm an arbitration award relating to expungement of customer dispute information from the Central Registration Depository (CRD) system; or filing an action in a court of competent jurisdiction to obtain expungement of customer dispute information from the CRD system; and
(B) Name the department as a party to a proceeding described;
(3) To authorize the commissioner, upon receiving the written notice required, to waive the obligation of a broker-dealer or an agent with a principal place of business, branch office, or other business location in this state to name the department as a party to proceeding; and
(4) To change the effective date for the provisions requiring the commissioner to require an agent or investment adviser representative applicant to submit a complete and legible set of fingerprints to the commissioner or to the TBI for a criminal history check from upon becoming a law to January 1, 2024.
ON MARCH 13, 2023, THE HOUSE SUBSTITUTED SENATE BILL 238 FOR HOUSE BILL 54, ADOPTED AMENDMENT #2, AND PASSED SENATE BILL 238, AS AMENDED.
AMENDMENT #2 makes a technical clarification to this bill.

Statutes affected:
Introduced: 48-1-102(12), 48-1-102, 48-1-102(13)(A), 48-1-103(a)(13)(A)(ii), 48-1-103, 48-1-103(a)(13)(A), 48-1-103(b)(9)(A)(iii)(c), 48-1-110(a)(3), 48-1-110, 48-1-110(f), 48-1-111(d), 48-1-111, 48-1-112, 48-1-116(e), 48-1-116, 48-1-125(a)(1)(D), 48-1-125, 56-6-120(h), 56-6-120, 48-1-118(b)(2), 48-1-118
Amended with SA0033 -- 03/06/2023: 48-1-102(12), 48-1-102, 48-1-102(13)(A), 48-1-103(a)(13)(A)(ii), 48-1-103, 48-1-103(a)(13)(A), 48-1-103(b)(9)(A)(iii)(c), 48-1-110(a)(3), 48-1-110, 48-1-110(f), 48-1-111(d), 48-1-111, 48-1-112, 48-1-116(e), 48-1-116, 48-1-125(a)(1)(D), 48-1-125, 56-6-120(h), 56-6-120, 48-1-118(b)(2), 48-1-118
Amended with SA0033, HA0088 -- 03/13/2023: 48-1-102(12), 48-1-102, 48-1-102(13)(A), 48-1-103(a)(13)(A)(ii), 48-1-103, 48-1-103(a)(13)(A), 48-1-103(b)(9)(A)(iii)(c), 48-1-110(a)(3), 48-1-110, 48-1-110(f), 48-1-111(d), 48-1-111, 48-1-112, 48-1-116(e), 48-1-116, 48-1-125(a)(1)(D), 48-1-125, 56-6-120(h), 56-6-120, 48-1-118(b)(2), 48-1-118
Amended with SA0033, HA0088 -- 03/20/2023: 48-1-102(12), 48-1-102, 48-1-102(13)(A), 48-1-103(a)(13)(A)(ii), 48-1-103, 48-1-103(a)(13)(A), 48-1-103(b)(9)(A)(iii)(c), 48-1-110(a)(3), 48-1-110, 48-1-110(f), 48-1-111(d), 48-1-111, 48-1-112, 48-1-116(e), 48-1-116, 48-1-125(a)(1)(D