Bill Text: CA AB2150 | 2019-2020 | Regular Session | Amended

NOTE: There are more recent revisions of this legislation. Read Latest Draft

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Bill Title: Corporate securities: limited exemption: study.

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Engrossed - Dead) 2020-08-20 - In committee: Held under submission. [AB2150 Detail]

Download: California-2019-AB2150-Amended.html

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Amended  IN  Assembly  May 21, 2020

Amended  IN  Assembly  May 04, 2020

CALIFORNIA LEGISLATURE— 2019–2020 REGULAR SESSION

Assembly Bill

No. 2150

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Introduced by Assembly Member Calderon

February 10, 2020

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An act to amend Section 25019 amend, repeal, and add Sections 25019 and 25531 of the Corporations Code, relating to corporate securities.

LEGISLATIVE COUNSEL'S DIGEST

AB 2150, as amended, Calderon. Corporate securities: exception: digital assets.

Existing law, the Corporate Securities Law of 1968, provides for the regulation of the issuance of corporate securities, requires the qualification of an offer or sale of securities, and provides for exemptions from qualification with the Commissioner of Business Oversight. Existing law defines a “security” to mean a note, stock, and, among other things, an investment contract.

This bill bill, until January 1, 2026, would create an exception from the above definition by providing that a digital asset meeting specified criteria is presumptively not an investment contract within the meaning of a “security.” The bill would allow that presumption to be rebutted upon good cause shown by clear and convincing a preponderance of the evidence by the Commissioner of Business Oversight, as specified.

Existing law authorizes the Commissioner of Business Oversight to make public or private investigations to determine if a person has violated or is about to violate any provision of the Corporate Securities Law of 1968 and, among other powers, to publish information concerning any violation of this law. Existing law authorizes the commissioner, in making an investigation, to take temporary possession of the books, records, accounts, and other papers pertaining to the business of any broker-dealer or investment adviser, as specified, and to administer oaths, subpoena witnesses, and take various other legal actions related to an investigation.

This bill would provide that the authority of the commissioner to investigate a person for a potential violation of the Corporate Securities Law of 1968 is not constrained by the rebuttable presumption described above. The bill would repeal these provisions on January 1, 2026.

Digest Key

Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

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Bill Text

The people of the State of California do enact as follows:

SECTION 1.

 Section 25019 of the Corporations Code is amended to read:

25019.

 (a) (1) “Security” means any of the following:

(A) Note.

(B) Stock.

(C) Treasury stock.

(D) Membership in an incorporated or unincorporated association.

(E) Bond.

(F) Debenture.

(G) Evidence of indebtedness.

(H) Certificate of interest or participation in any profit-sharing agreement.

(I) Collateral trust certificate.

(J) Preorganization certificate or subscription.

(K) Transferable share.

(L) Investment contract, except any digital asset that meets one of the following criteria is presumptively not an investment contract (the presumption of which may be rebutted upon good cause shown by clear and convincing a preponderance of the evidence by the Commissioner):

(i) The asset is not acquired by the holder in exchange for the payment of fiat currency or another digital asset.

(ii) The asset is used on a fully operational network and the purpose of the asset is for a consumptive purpose, such as the access or consumption of goods, services, data, or the performance of useful functions other than as a medium of exchange or store of value.

(iii) The asset does not rely on the managerial efforts of others for its success, with the lack of managerial efforts of others evidenced by the absence of any identifiable person, project team, or management entity that is responsible for the development, improvement, oversight, or promotion of the asset or the related network, and either:

(I) Any changes to the software code underlying that asset may be made by network participants.

(II) Voting rights over the functioning of the network are conferred to each holder of the asset.

(M) Viatical settlement contract or a fractionalized or pooled interest therein.

(N) Voting trust certificate.

(O) Certificate of deposit for a security.

(P) Interest in a limited liability company and any class or series of those interests (including any fractional or other interest in that interest), except a membership interest in a limited liability company in which the person claiming this exception can prove that all of the members are actively engaged in the management of the limited liability company; provided that evidence that members vote or have the right to vote, or the right to information concerning the business and affairs of the limited liability company, or the right to participate in management, shall not establish, without more, that all members are actively engaged in the management of the limited liability company.

(Q) Certificate of interest or participation in an oil, gas or mining title or lease or in payments out of production under that title or lease.

(R) Put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof).

(S) Put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency.

(T) Any beneficial interest or other security issued in connection with a funded employees’ pension, profit sharing, stock bonus, or similar benefit plan.

(U) In general, any interest or instrument commonly known as a “security.”

(V) Any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.

(2) All of the foregoing are securities whether or not evidenced by a written document.

(b) “Security” does not include any of the following:

(1) Any beneficial interest in any voluntary inter vivos trust that is not created for the purpose of carrying on any business or solely for the purpose of voting.

(2) Any beneficial interest in any testamentary trust.

(3) Any insurance or endowment policy or annuity contract under which an insurance company admitted in this state promises to pay a sum of money (whether or not based upon the investment performance of a segregated fund) either in a lump sum or periodically for life or some other specified period.

(4) Any franchise subject to registration under the Franchise Investment Law (Division 5 (commencing with Section 31000)), or exempted from registration by Section 31100 or 31101.

(c) This section shall remain in effect only until January 1, 2026, and as of that date is repealed.

SEC. 2.

 Section 25019 is added to the Corporations Code, to read:

25019.

 (a) (1) “Security” means any of the following:

(A) Note.

(B) Stock.

(C) Treasury stock.

(D) Membership in an incorporated or unincorporated association.

(E) Bond.

(F) Debenture.

(G) Evidence of indebtedness.

(H) Certificate of interest or participation in any profit-sharing agreement.

(I) Collateral trust certificate.

(J) Preorganization certificate or subscription.

(K) Transferable share.

(L) Investment contract.

(M) Viatical settlement contract or a fractionalized or pooled interest therein.

(N) Voting trust certificate.

(O) Certificate of deposit for a security.

(P) Interest in a limited liability company and any class or series of those interests (including any fractional or other interest in that interest), except a membership interest in a limited liability company in which the person claiming this exception can prove that all of the members are actively engaged in the management of the limited liability company; provided that evidence that members vote or have the right to vote, or the right to information concerning the business and affairs of the limited liability company, or the right to participate in management, shall not establish, without more, that all members are actively engaged in the management of the limited liability company.

(Q) Certificate of interest or participation in an oil, gas or mining title or lease or in payments out of production under that title or lease.

(R) Put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof).

(S) Put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency.

(T) Any beneficial interest or other security issued in connection with a funded employees’ pension, profit sharing, stock bonus, or similar benefit plan.

(U) In general, any interest or instrument commonly known as a “security.”

(V) Any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.

(2) All of the foregoing are securities whether or not evidenced by a written document.

(b) “Security” does not include any of the following:

(1) Any beneficial interest in any voluntary inter vivos trust that is not created for the purpose of carrying on any business or solely for the purpose of voting.

(2) Any beneficial interest in any testamentary trust.

(3) Any insurance or endowment policy or annuity contract under which an insurance company admitted in this state promises to pay a sum of money (whether or not based upon the investment performance of a segregated fund) either in a lump sum or periodically for life or some other specified period.

(4) Any franchise subject to registration under the Franchise Investment Law (Division 5 (commencing with Section 31000)), or exempted from registration by Section 31100 or 31101.

(c) This section shall become operative on January 1, 2026.

SEC. 3.

 Section 25531 of the Corporations Code is amended to read:

25531.

 (a) The commissioner in his has the discretion (1) may make such public or to both:

(1) Make any public or private investigations investigation within or outside of this state as he deems deemed necessary to determine whether any person has violated or is about to violate any provision of this law or any rule or order hereunder law, or any rule or order prescribed pursuant to this law, or to aid in the enforcement of this law or in the prescribing of rules and forms hereunder, and (2) may publish related rules and forms.

(2) Publish information concerning any violation of this law or any rule or order hereunder. prescribed pursuant to this law.

(b) In making any investigation authorized by paragraph (1) of subdivision (a) of this section, (a), the commissioner may, for a reasonable time not exceeding 30 days, take possession of the books, records, accounts accounts, and other papers pertaining to the business of any broker-dealer or investment adviser and place a keeper in exclusive charge of them in the place where they are usually kept. During such the commissioner’s possession no person shall remove or attempt to remove any of the books, records, accounts, or other papers except pursuant to a court order or with the consent of the commissioner; but the directors, officers, partners, and employees of the broker-dealer or investment adviser may examine them, and employees shall be permitted to make entries therein in them reflecting current transactions.

(c) For the purpose of any investigation or proceeding under this law, the commissioner or any officer designated by him the commissioner may administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence, and require the production of any books, papers, correspondence, memoranda, agreements, or other documents or records which that the commissioner deems relevant or material to the inquiry.

(d) In case of contumacy by, or refusal to obey a subpoena issued to, any person, the superior court, upon application by the commissioner, may issue to the person an order requiring him that person to appear before the commissioner, or the officer designated by him, there commissioner’s designated officer, to produce documentary evidence, if so ordered, or to give evidence touching the matter under investigation or in question. Failure to obey the order of the court may be punished by the court as a contempt.

(e) No person is excused from attending and testifying or from producing any document or record before the commissioner, or in obedience to the subpoena of the commissioner or any officer designated by him, the commissioner, or in any proceeding instituted by the commissioner, on the ground that the testimony or evidence (documentary or otherwise) required of him may tend to incriminate him or subject him that person to a penalty or forfeiture; but no individual may be prosecuted or subjected to any penalty or forfeiture for or on account of any transaction, matter, or thing concerning which he that person is compelled, after validly claiming his their privilege against self-incrimination, to testify or produce evidence (documentary or otherwise), except that the individual testifying is not exempt from prosecution and punishment for perjury or contempt committed in testifying.

(f) Notwithstanding the rebuttable presumption provided by subparagraph (L) of paragraph (1) of subdivision (a) of Section 25019, the authority of the commissioner to investigate a person for a potential violation of this division shall not be constrained by the rebuttable presumption.

(g) This section shall remain in effect only until January 1, 2026, and as of that date is repealed.

SEC. 4.

 Section 25531 is added to the Corporations Code, to read:

25531.

 (a) The commissioner has the discretion to both:

(1) Make any public or private investigation within or outside of this state as deemed necessary to determine whether any person has violated or is about to violate any provision of this law, or any rule or order prescribed pursuant to this law, or to aid in the enforcement of this law or in the prescribing of related rules and forms.

(2) Publish information concerning any violation of this law or any rule or order prescribed pursuant to this law.

(b) In making any investigation authorized by paragraph (1) of subdivision (a), the commissioner may, for a reasonable time not exceeding 30 days, take possession of the books, records, accounts, and other papers pertaining to the business of any broker-dealer or investment adviser and place a keeper in exclusive charge of them in the place where they are usually kept. During the commissioner’s possession no person shall remove or attempt to remove any of the books, records, accounts, or other papers except pursuant to a court order or with the consent of the commissioner; but the directors, officers, partners, and employees of the broker-dealer or investment adviser may examine them, and employees shall be permitted to make entries in them reflecting current transactions.

(c) For the purpose of any investigation or proceeding under this law, the commissioner or any officer designated by the commissioner may administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence, and require the production of any books, papers, correspondence, memoranda, agreements, or other documents or records that the commissioner deems relevant or material to the inquiry.

(d) In case of contumacy by, or refusal to obey a subpoena issued to, any person, the superior court, upon application by the commissioner, may issue to the person an order requiring that person to appear before the commissioner, or the commissioner’s designated officer, to produce documentary evidence, if so ordered, or to give evidence touching the matter under investigation or in question. Failure to obey the order of the court may be punished by the court as a contempt.

(e) No person is excused from attending and testifying or from producing any document or record before the commissioner, or in obedience to the subpoena of the commissioner or any officer designated by the commissioner, or in any proceeding instituted by the commissioner, on the ground that the testimony or evidence (documentary or otherwise) required may tend to incriminate or subject that person to a penalty or forfeiture; but no individual may be prosecuted or subjected to any penalty or forfeiture for or on account of any transaction, matter, or thing concerning which that person is compelled, after validly claiming their privilege against self-incrimination, to testify or produce evidence (documentary or otherwise), except that the individual testifying is not exempt from prosecution and punishment for perjury or contempt committed in testifying.

(f) This section shall become operative on January 1, 2026.