2008 Legislation
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SENATE BILL NO. 1255<br /> – Securities, broker-dealer, records

SENATE BILL NO. 1255

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S1255.......................................by COMMERCE AND HUMAN RESOURCES
SECURITIES - BROKER-DEALER - Amends existing law relating to the Uniform
Securities Act to provide recordkeeping requirements for broker-dealer
agents, investment advisor representatives and persons issuing securities;
and to revise provisions relating to audits and inspections.

01/11    Senate intro - 1st rdg - to printing
01/14    Rpt prt - to Com/HuRes

Bill Text




                                                                       
  ]]]]              LEGISLATURE OF THE STATE OF IDAHO             ]]]]
 Fifty-ninth Legislature                   Second Regular Session - 2008

                                                                       

                                       IN THE SENATE

                                    SENATE BILL NO. 1255

                         BY COMMERCE AND HUMAN RESOURCES COMMITTEE

  1                                        AN ACT
  2    RELATING TO THE UNIFORM SECURITIES  ACT;  AMENDING  SECTION  30-14-411,  IDAHO
  3        CODE,  TO  PROVIDE  RECORDKEEPING  REQUIREMENTS  FOR BROKER-DEALER AGENTS,
  4        INVESTMENT ADVISER REPRESENTATIVES, AND  PERSONS  ISSUING  SECURITIES,  TO
  5        REVISE  PROVISIONS  RELATING TO AUDITS AND INSPECTIONS AND TO PROVIDE COR-
  6        RECT REFERENCES; AMENDING SECTION 9-340H, IDAHO CODE, TO  PROVIDE  CORRECT
  7        CODE REFERENCES; AMENDING SECTIONS 30-14-412 AND 30-14-509, IDAHO CODE, TO
  8        PROVIDE  CORRECT  CODE  REFERENCES  AND TO MAKE TECHNICAL CORRECTIONS; AND
  9        AMENDING SECTION 30-14-607, IDAHO CODE, TO  PROVIDE  CORRECT  CODE  REFER-
 10        ENCES.

 11    Be It Enacted by the Legislature of the State of Idaho:

 12        SECTION 1.  That Section 30-14-411, Idaho Code, be, and the same is hereby
 13    amended to read as follows:

 14        30-14-411.  POSTREGISTRATION  REQUIREMENTS.  (a)  Financial  requirements.
 15    Subject  to  section  15(h)  of the securities exchange act of 1934 (15 U.S.C.
 16    78o(h)) or section 222 of the investment  advisers  act  of  1940  (15  U.S.C.
 17    80b-2218a), a rule adopted or an order issued under this chapter may establish
 18    minimum financial requirements for broker-dealers registered or required to be
 19    registered  under  this chapter and investment advisers registered or required
 20    to be registered under this chapter.
 21        (b)  Financial  reports.  Subject  to  section  15(h)  of  the  securities
 22    exchange act of 1934 (15 U.S.C. 78o(h)) or section 222(b)  of  the  investment
 23    advisers  act  of  1940  (15  U.S.C. 80b-2218a), a broker-dealer registered or
 24    required to be registered under this chapter and an investment adviser  regis-
 25    tered  or  required to be registered under this chapter shall file such finan-
 26    cial reports as are required by a rule adopted or an order issued  under  this
 27    chapter.  If the information contained in a record filed under this subsection
 28    is or becomes inaccurate or incomplete in a material respect,  the  registrant
 29    shall promptly file a correcting amendment.
 30        (c)  Recordkeeping  --  Broker-dealers and investment advisers. Subject to
 31    section 15(h) of the securities exchange act of 1934  (15  U.S.C.  78o(h))  or
 32    section 222 of the investment advisers act of 1940 (15 U.S.C. 80b-2218a):
 33        (1)  A  broker-dealer  registered  or required to be registered under this
 34        chapter and an investment adviser registered or required to be  registered
 35        under  this  chapter shall make and maintain the accounts, correspondence,
 36        memoranda, papers, books and other records required by a rule  adopted  or
 37        an order issued under this chapter;
 38        (2)  Broker-dealer  records  required  to  be  maintained under subsection
 39        (c)(1) of this section may be maintained  in  any  form  of  data  storage
 40        acceptable  under section 17(a) of the securities exchange act of 1934 (15
 41        U.S.C. 78q(a)) if they are readily accessible to the administrator; and
 42        (3)  Investment adviser records required to be maintained under subsection
 43        (c)(1) of this section may be maintained  in  any  form  of  data  storage

                                       2

  1        required by a rule adopted or an order issued under this chapter.
  2        (d)  Recordkeeping  --  Broker-dealer agents and investment adviser repre-
  3    sentatives. Any records of the type described or referred to in subsection (c)
  4    of this section, which pertain to the operation, management or  business  con-
  5    ducted at the place of business of a broker-dealer agent or investment adviser
  6    representative  registered  or  required  to be registered under this chapter,
  7    which such agent or representative makes or maintains  in  addition  to  those
  8    made  or  maintained  by the broker-dealer or investment adviser in accordance
  9    with subsection (c) of this section, shall be maintained at the place of busi-
 10    ness of such agent or representative and made available to  the  administrator
 11    as provided for in subsection (f) of this section.
 12        (e)  Recordkeeping -- Persons issuing or guaranteeing securities.  Persons
 13    subject  to the provisions of this chapter issuing or guaranteeing any securi-
 14    ties shall make, maintain and promptly make  available  to  the  administrator
 15    upon request the records which are described in the rules prescribed or orders
 16    issued  by the administrator or the United States securities and exchange com-
 17    mission.
 18        (f)  Audits or inspections. The records of every person issuing or guaran-
 19    teeing any securities subject to the provisions of this chapter, if such  per-
 20    son  is  registered  or  required  to be registered under this chapter, and of
 21    every broker-dealer, agent, investment adviser or investment adviser represen-
 22    tative registered or required to be registered under required to be  made  and
 23    maintained  pursuant to this section by every person subject to the provisions
 24    of this chapter are subject to such  reasonable  periodic,  special  or  other
 25    audits  or  inspections  by  a  representative of the administrator, within or
 26    without this state, as the administrator considers necessary or appropriate in
 27    the public interest and for the protection of investors. An audit  or  inspec-
 28    tion  may  shall  be made at any time during normal business hours and with or
 29    without prior notice. Audits or inspections shall be conducted at any place of
 30    business of the person subject to such audit or inspection.  All persons  reg-
 31    istered  or  required  to  be registered under this chapter shall produce upon
 32    request of the administrator the records required to  be  made  or  maintained
 33    under  this section.  The administrator may remove or copy, and may remove for
 34    audit or inspection copies of, all records the administrator  reasonably  con-
 35    siders necessary or appropriate to conduct the audit or inspection. The admin-
 36    istrator  may assess a reasonable charge for conducting an audit or inspection
 37    under this subsection.
 38        (eg)  Custody and discretionary authority bond or  insurance.  Subject  to
 39    section  15(h)  of  the  securities exchange act of 1934 (15 U.S.C. 78o(h)) or
 40    section 222 of the investment advisers act of 1940 (15  U.S.C.  80b-2218a),  a
 41    rule adopted or an order issued under this chapter may require a broker-dealer
 42    or  investment  adviser  that  has  custody of or discretionary authority over
 43    funds or securities of a customer or client to obtain insurance or post a bond
 44    or other satisfactory form of security in an amount not to exceed  twenty-five
 45    thousand  dollars  ($25,000). The administrator may determine the requirements
 46    of the insurance, bond or other satisfactory form of security. Insurance or  a
 47    bond  or  other satisfactory form of security may not be required of a broker-
 48    dealer registered under this chapter whose  net  capital  exceeds,  or  of  an
 49    investment  adviser  registered  under  this  chapter  whose minimum financial
 50    requirements exceed, the amounts required by rule or order under this chapter.
 51    The insurance, bond or other satisfactory form  of  security  must  permit  an
 52    action  by  a  person to enforce any liability on the insurance, bond or other
 53    satisfactory form of security if instituted within  the  time  limitations  in
 54    section 30-14-509(j)(2), Idaho Code.
 55        (fh)  Requirements for custody. Subject to section 15(h) of the securities

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  1    exchange  act  of  1934  (15  U.S.C.  78o(h)) or section 222 of the investment
  2    advisers act of 1940 (15 U.S.C. 80b-2218a), an agent may not have  custody  of
  3    funds  or  securities  of a customer except under the supervision of a broker-
  4    dealer and an investment adviser representative may not have custody of  funds
  5    or  securities  of  a  client  except  under  the supervision of an investment
  6    adviser or a federal covered investment adviser. A rule adopted  or  an  order
  7    issued  under  this  chapter  may  prohibit,  limit, or impose conditions on a
  8    broker-dealer regarding custody of funds or securities of a customer and on an
  9    investment adviser regarding custody of securities or funds of a client.
 10        (gi)  Investment adviser brochure rule.  With  respect  to  an  investment
 11    adviser  registered  or  required  to be registered under this chapter, a rule
 12    adopted or an order issued  under this chapter may require that information or
 13    other record be furnished or disseminated to clients or prospective clients in
 14    this state as necessary or appropriate in the public interest and for the pro-
 15    tection of investors and advisory clients.
 16        (hj)  Continuing education. A rule adopted or an order issued  under  this
 17    chapter  may  require  an  individual  registered  under  section 30-14-402 or
 18    30-14-404, Idaho Code,  to  participate  in  a  continuing  education  program
 19    approved by the securities and exchange commission and administered by a self-
 20    regulatory  organization  or, in the absence of such a program, a rule adopted
 21    or an order issued under this chapter may require continuing education for  an
 22    individual registered under section 30-14-404, Idaho Code.

 23        SECTION  2.  That  Section  9-340H, Idaho Code, be, and the same is hereby
 24    amended to read as follows:

 25        9-340H.  EXEMPTION FROM DISCLOSURE -- RECORDS RELATED TO THE UNIFORM SECU-
 26    RITIES ACT. Except as otherwise determined by the director of  the  department
 27    of finance pursuant to section 30-14-607(c), Idaho Code, the following records
 28    are exempt from disclosure:
 29        (1)  A  record  obtained  or  created by the director of the department of
 30    finance or a representative of the director in connection  with  an  audit  or
 31    inspection  under section 30-14-411(df), Idaho Code, or an investigation under
 32    section 30-14-602, Idaho Code;
 33        (2)  A part of a record filed in connection with a registration  statement
 34    under section 30-14-301, Idaho Code, and sections 30-14-303 through 30-14-305,
 35    Idaho Code, or a record under section 30-14-411(df), Idaho Code, that contains
 36    trade  secrets  or confidential information if the person filing the registra-
 37    tion statement or report has asserted a claim of confidentiality or  privilege
 38    that is authorized by law;
 39        (3)  A  record  that is not required to be provided to the director of the
 40    department of finance or filed under chapter 14, title 30, Idaho Code, and  is
 41    provided  to  the  director  only on the condition that the record will not be
 42    subject to public examination or disclosure;
 43        (4)  A nonpublic record  received  from  a  person  specified  in  section
 44    30-14-608(a), Idaho Code; and
 45        (5)  Any  social  security  number,  residential  address unless used as a
 46    business address, and residential telephone number unless used as  a  business
 47    telephone  number, contained in a record that is filed pursuant to chapter 14,
 48    title 30, Idaho Code.

 49        SECTION 3.  That Section 30-14-412, Idaho Code, be, and the same is hereby
 50    amended to read as follows:

 51        30-14-412.  DENIAL, REVOCATION, SUSPENSION, WITHDRAWAL, RESTRICTION,  CON-

                                       4

  1    DITION  OR  LIMITATION  OF REGISTRATION. (a) Disciplinary conditions -- Appli-
  2    cants. If the administrator finds that the order is in the public interest and
  3    subsection (d) of this section authorizes the action, an  order  issued  under
  4    this  chapter  may deny an application, or may condition or limit registration
  5    of an applicant to be a broker-dealer, agent, investment adviser or investment
  6    adviser representative, and, if the applicant is a broker-dealer or investment
  7    adviser, of or a partner, officer, director or person having a similar  status
  8    or  performing  similar  functions, or a person directly or indirectly in con-
  9    trol, of the broker-dealer or investment adviser.
 10        (b)  Disciplinary conditions -- Registrants. If  the  administrator  finds
 11    that  the  order  is in the public interest and subsection (d) of this section
 12    authorizes the action, an order issued under this chapter may revoke, suspend,
 13    condition or limit the registration of a registrant and, if the registrant  is
 14    a  broker-dealer  or investment adviser, of or a partner, officer, director or
 15    person having a similar status or performing similar functions,  or  a  person
 16    directly or indirectly in control, of the broker-dealer or investment adviser.
 17    Provided however, the administrator may not:
 18        (1)  Institute a revocation or suspension proceeding under this subsection
 19        based  on an order issued under a law of another state that is reported to
 20        the administrator or a designee of the administrator  more  than  one  (1)
 21        year after the date of the order on which it is based; or
 22        (2)  Under  subsection (d)(5)(A) or (B) of this section, issue an order on
 23        the basis of an order issued under the securities  act  of  another  state
 24        unless  the  other  order was based on conduct for which subsection (d) of
 25        this section would authorize the action had the conduct occurred  in  this
 26        state.
 27        (c)  Disciplinary  penalties  --  Registrants.  If the administrator finds
 28    that the order is in the public interest and subsections (d)(1)  through  (6),
 29    (8),  (9),  (10), (12) or (13) of this section authorizes the action, an order
 30    under this chapter may censure, impose a bar or  suspension  from  association
 31    with a broker-dealer or investment adviser registered in this state, or impose
 32    a  civil penalty in an amount not to exceed five thousand dollars ($5,000) for
 33    each violation, on a registrant and, if the registrant is a  broker-dealer  or
 34    investment  adviser,  a  partner, officer, director or person having a similar
 35    status or performing similar functions, or a person directly or indirectly  in
 36    control, of the broker-dealer or investment adviser.
 37        (d)  Grounds for discipline. A person may be disciplined under subsections
 38    (a) through (c) of this section if the person:
 39        (1)  Has  filed  an  application for registration in this state under this
 40        chapter or the predecessor act within the previous ten (10) years,  which,
 41        as of the effective date of registration or as of any date after filing in
 42        the case of an order denying effectiveness, was incomplete in any material
 43        respect or contained a statement that, in light of the circumstances under
 44        which  it  was  made,  was  false or misleading with respect to a material
 45        fact;
 46        (2)  Willfully violated or willfully failed to comply with this chapter or
 47        the predecessor act or a rule adopted or an order issued under this  chap-
 48        ter or the predecessor act within the previous ten (10) years;
 49        (3)  Has  been  convicted  of  any  felony or within the previous ten (10)
 50        years has been convicted of a misdemeanor involving a security, a  commod-
 51        ity  future or option contract, or an aspect of a business involving secu-
 52        rities,  commodities,  investments,  franchises,  insurance,  banking   or
 53        finance;
 54        (4)  Is  enjoined or restrained by a court of competent jurisdiction in an
 55        action instituted by the administrator under this chapter or the predeces-

                                       5

  1        sor act, a state, the securities and exchange commission,  or  the  United
  2        States  from engaging in or continuing an act, practice or course of busi-
  3        ness involving an aspect of a business involving securities,  commodities,
  4        investments, franchises, insurance, banking or finance;
  5        (5)  Is  the  subject of an order, issued after notice and opportunity for
  6        hearing by:
  7             (A)  The  securities,  depository  institution,  insurance  or  other
  8             financial services regulator of a state  or  by  the  securities  and
  9             exchange  commission  or other federal agency denying, revoking, bar-
 10             ring or suspending registration as a broker-dealer, agent, investment
 11             adviser, federal covered investment adviser,  or  investment  adviser
 12             representative;
 13             (B)  The  securities  regulator  of  a  state  or  the securities and
 14             exchange  commission  against  a  broker-dealer,  agent,   investment
 15             adviser,   investment  adviser  representative,  or  federal  covered
 16             investment adviser;
 17             (C)  The securities and  exchange  commission  or  a  self-regulatory
 18             organization  suspending  or expelling the registrant from membership
 19             in the self-regulatory organization;
 20             (D)  A court adjudicating a United States postal service fraud order;
 21             (E)  The insurance regulator of a state denying, suspending or revok-
 22             ing registration as an insurance agent; or
 23             (F)  A depository institution regulator  suspending  or  barring  the
 24             person from the depository institution business;
 25        (6)  Is  the subject of an adjudication or determination, after notice and
 26        opportunity for hearing, by the securities and  exchange  commission,  the
 27        commodity futures trading commission; the federal trade commission; a fed-
 28        eral depository institution regulator, or a depository institution, insur-
 29        ance  or  other  financial  services  regulator of a state that the person
 30        willfully violated the securities act of 1933, the securities exchange act
 31        of 1934, the investment advisers act of 1940, the investment  company  act
 32        of  1940, or the commodity exchange act, the securities or commodities law
 33        of a state, or a federal or state law under  which  a  business  involving
 34        investments, franchises, insurance, banking or finance is regulated;
 35        (7)  Is  insolvent,  either  because  the  person's liabilities exceed the
 36        person's assets or because the person cannot meet the person's obligations
 37        as they mature, provided however that the administrator may not  enter  an
 38        order  against an applicant or registrant under this paragraph (7) without
 39        a finding of insolvency as to the applicant or registrant;
 40        (8)  Refuses to allow or otherwise impedes the administrator from conduct-
 41        ing an audit or inspection under section  30-14-411(df),  Idaho  Code,  or
 42        refuses  access to a registrant's office to conduct an audit or inspection
 43        under section 30-14-411(df), Idaho Code;
 44        (9)  Has failed to reasonably supervise an agent, investment adviser  rep-
 45        resentative  or  other individual, if the agent, investment adviser repre-
 46        sentative or other individual was subject to the person's supervision  and
 47        committed  a  violation  of  this chapter or the predecessor act or a rule
 48        adopted or an order issued under  this  chapter  or  the  predecessor  act
 49        within the previous ten (10) years;
 50        (10) Has not paid the proper filing fee within thirty (30) days after hav-
 51        ing  been  notified by the administrator of a deficiency, provided however
 52        that the administrator shall vacate an order  under  this  paragraph  (10)
 53        when the deficiency is corrected;
 54        (11) After notice and opportunity for a hearing, has been found within the
 55        previous ten (10) years:

                                       6

  1             (A)  By  a court of competent jurisdiction to have willfully violated
  2             the laws of a foreign jurisdiction under which the business of  secu-
  3             rities,  commodities,  investment,  franchises, insurance, banking or
  4             finance is regulated;
  5             (B)  To have been the subject of an order of a  securities  regulator
  6             of  a  foreign jurisdiction denying, revoking or suspending the right
  7             to engage in the business of securities as  a  broker-dealer,  agent,
  8             investment adviser, investment adviser representative or similar per-
  9             son; or
 10             (C)  To have been suspended or expelled from membership by or partic-
 11             ipation  in a securities exchange or securities association operating
 12             under the securities laws of a foreign jurisdiction;
 13        (12) Is the subject of a cease and desist order issued by  the  securities
 14        and  exchange  commission  or  issued  under  the securities, commodities,
 15        investment, franchise, banking, finance or insurance laws of a state;
 16        (13) Has engaged in dishonest or unethical practices  in  the  securities,
 17        commodities, investment, franchise, banking, finance or insurance business
 18        within the previous ten (10) years; or
 19        (14) Is not qualified on the basis of factors such as training, experience
 20        and knowledge of the securities business. Provided however, in the case of
 21        an application by an agent for a broker-dealer that is a member of a self-
 22        regulatory organization or by an individual for registration as an invest-
 23        ment adviser representative, a denial order may not be based on this para-
 24        graph  (14)  if the individual has successfully completed all examinations
 25        required by subsection (e) of this section. The administrator may  require
 26        an  applicant for registration under section 30-14-402 or 30-14-404, Idaho
 27        Code, who has not been registered in a state within the two (2) years pre-
 28        ceding the filing of an application in this state to successfully complete
 29        an examination.
 30        (e)  Examinations. A rule adopted or an order issued  under  this  chapter
 31    may  require  that  an  examination,  including  an  examination  developed or
 32    approved by an organization of securities  regulators,  be  successfully  com-
 33    pleted  by  a  class  of individuals or all individuals. An order issued under
 34    this chapter may waive, in whole or in part, an examination as to an  individ-
 35    ual  and  a rule adopted under this chapter may waive, in whole or in part, an
 36    examination as to a class of individuals if the administrator determines  that
 37    the examination is not necessary or appropriate in the public interest and for
 38    the protection of investors.
 39        (f)  Summary process. The administrator may suspend or deny an application
 40    summarily;  restrict,  condition, limit or suspend a registration; or censure,
 41    bar, or impose a civil penalty on a registrant before final  determination  of
 42    an administrative proceeding. Upon the issuance of an order, the administrator
 43    shall promptly notify each person subject to the order that the order has been
 44    issued,  the  reasons  for the action, and that within fifteen (15) days after
 45    the receipt of a request in a record from the person the matter will be sched-
 46    uled for a hearing. If a hearing is not requested and none is ordered  by  the
 47    administrator  within thirty (30) days after the date of service of the order,
 48    the order becomes final by operation of law. If  a  hearing  is  requested  or
 49    ordered,  the  administrator,  after  notice of and opportunity for hearing to
 50    each person subject to the order, may modify or vacate the order or extend the
 51    order until final determination.
 52        (g)  Procedural requirements. An order issued may not be issued under this
 53    section, except under subsection (f) of this section, without:
 54        (1)  Appropriate notice to the applicant or registrant;
 55        (2)  Opportunity for hearing; and

                                       7

  1        (3)  Findings of fact and conclusions of law in  a  record  in  accordance
  2        with chapter 52, title 67, Idaho Code.
  3        (h)  Control  person  liability. A person that controls, directly or indi-
  4    rectly, a person not in compliance with this section  may  be  disciplined  by
  5    order  of  the administrator under subsections (a) through (c) of this section
  6    to the same extent as the noncomplying person, unless the  controlling  person
  7    did  not know, and in the exercise of reasonable care could not have known, of
  8    the existence of conduct that is a ground for discipline under this section.
  9        (i)  Limit on investigation  or  proceeding.  The  administrator  may  not
 10    institute  a proceeding under subsection (a), (b) or (c) of this section based
 11    solely on material facts actually known by the administrator unless an  inves-
 12    tigation  or the proceeding is instituted within one (1) year after the admin-
 13    istrator actually acquires knowledge of the material facts.

 14        SECTION 4.  That Section 30-14-509, Idaho Code, be, and the same is hereby
 15    amended to read as follows:

 16        30-14-509.  CIVIL LIABILITY. (a) Securities litigation  uniform  standards
 17    act. Enforcement of civil liability under this section is subject to the secu-
 18    rities  litigation  uniform  standards  act  of  1998,  as  cited  in  section
 19    30-14-103, Idaho Code.
 20        (b)  Liability of seller to purchaser. A person is liable to the purchaser
 21    if  the person sells a security in violation of section 30-14-301, Idaho Code,
 22    or, by means of an untrue statement of a material fact or an omission to state
 23    a material fact necessary in order to make the statement made, in light of the
 24    circumstances under which it is made, not misleading, the purchaser not  know-
 25    ing  the untruth or omission and the seller not sustaining the burden of proof
 26    that the seller did not know and, in the exercise of  reasonable  care,  could
 27    not  have known of the untruth or omission. An action under this subsection is
 28    governed by the following:
 29        (1)  The purchaser may maintain an action  to  recover  the  consideration
 30        paid for the security, less the amount of any income received on the secu-
 31        rity,  and  interest  at  the annual rate of interest set forth in section
 32        28-22-104(2), Idaho Code, from the date of the purchase, costs,  and  rea-
 33        sonable  attorneys's  fees determined by the court, upon the tender of the
 34        security, or for actual damages as provided in subsection (b)(3)  of  this
 35        section.
 36        (2)  The  tender  referred  to in subsection (b)(1) of this section may be
 37        made any time before entry of judgment. Tender requires only notice  in  a
 38        record  of ownership of the security and willingness to exchange the secu-
 39        rity for the amount specified. A purchaser that no longer owns  the  secu-
 40        rity  may  recover actual damages as provided in subsection (b)(3) of this
 41        section.
 42        (3)  Actual damages in an action arising under  this  subsection  are  the
 43        amounts  that  would  be  recoverable  upon a tender less the value of the
 44        security when the purchaser disposed of it, and  interest  at  the  annual
 45        rate  of  interest set forth in section 28-22-104(2), Idaho Code, from the
 46        date of the purchase, costs, and reasonable attorneys's fees determined by
 47        the court.
 48        (c)  Liability of purchaser to seller. A person is liable to the seller if
 49    the person buys a security by means of an untrue statement of a material  fact
 50    or  omission to state a material fact necessary in order to make the statement
 51    made, in light of the circumstances under which it is  made,  not  misleading,
 52    the  seller not knowing of the untruth or omission, and the purchaser not sus-
 53    taining the burden of proof that the purchaser did not know, and in the  exer-

                                       8

  1    cise  of  reasonable care, could not have known of the untruth or omission. An
  2    action under this subsection is governed by the following:
  3        (1)  The seller may maintain an action to recover the  security,  and  any
  4        income  received  on  the security, costs, and reasonable attorneys's fees
  5        determined by the court, upon the tender of the  purchase  price,  or  for
  6        actual damages as provided in subsection (c)(3) of this section.
  7        (2)  The  tender  referred  to in subsection (c)(1) of this section may be
  8        made any time before entry of judgment. Tender requires only notice  in  a
  9        record  of  the present ability to pay the amount tendered and willingness
 10        to take delivery of the security for the amount  specified.  If  the  pur-
 11        chaser  no longer owns the security, the seller may recover actual damages
 12        as provided in subsection (c)(3) of this section.
 13        (3)  Actual damages in an action arising under  this  subsection  are  the
 14        difference  between the price at which the security was sold and the value
 15        the security would have had at the time of the sale in the absence of  the
 16        purchaser's  conduct causing liability, and at the annual rate of interest
 17        set forth in section 28-22-104(2), Idaho Code, from the date of  the  sale
 18        of  the security, costs, and reasonable attorneys's fees determined by the
 19        court.
 20        (d)  Liability of unregistered broker-dealer and agent. A person acting as
 21    a broker-dealer or agent that sells or buys a security in violation of section
 22    30-14-401(a), 30-14-402(a) or 30-14-506, Idaho Code, is  liable  to  the  cus-
 23    tomer.  The  customer,  if a purchaser, may maintain an action for recovery of
 24    actual damages as specified in subsections (b)(1) through (3) of this section,
 25    or, if a seller, for a remedy as specified in subsections (c)(1)  through  (3)
 26    of this section.
 27        (e)  Liability  of  unregistered investment adviser and investment adviser
 28    representative. A person acting as an investment adviser or investment adviser
 29    representative that provides investment advice for compensation  in  violation
 30    of  section  30-14-403(a), 30-14-404(a) or 30-14-506, Idaho Code, is liable to
 31    the client. The client may maintain an action  to  recover  the  consideration
 32    paid for the advice, interest at the annual rate of interest set forth in sec-
 33    tion 28-22-104(2), Idaho Code, from the date of payment, costs, and reasonable
 34    attorneys's fees determined by the court.
 35        (f)  Liability  for  investment advice. A person that receives directly or
 36    indirectly any consideration for providing investment advice to another person
 37    and that employs a device, scheme or artifice to defraud the other  person  or
 38    engages  in  an  act,  practice,  or course of business that operates or would
 39    operate as a fraud or deceit on the other person, is liable to the other  per-
 40    son. An action under this subsection is governed by the following:
 41        (1)  The  person defrauded may maintain an action to recover the consider-
 42        ation paid for the advice and the amount of any actual damages  caused  by
 43        the  fraudulent conduct, interest at the annual rate of interest set forth
 44        in section 28-22-104(2), Idaho Code, from the date of the fraudulent  con-
 45        duct, costs, and reasonable attorneys's fees determined by the court, less
 46        the amount of any income received as a result of the fraudulent conduct.
 47        (2)  This  subsection  does  not apply to a broker-dealer or its agents if
 48        the investment advice provided is solely incidental to  transacting  busi-
 49        ness  as  a  broker-dealer and no special compensation is received for the
 50        investment advice.
 51        (g)  Joint and several liability. The following persons are liable jointly
 52    and severally with and to the same extent as persons liable under  subsections
 53    (b) through (f) of this section:
 54        (1)  A  person  that directly or indirectly controls a person liable under
 55        subsections (b) through (f) of this section, unless the controlling person

                                       9

  1        sustains the burden of proof that the person did  not  know,  and  in  the
  2        exercise of reasonable care could not have known, of the existence of con-
  3        duct by reason of which the liability is alleged to exist;
  4        (2)  An individual who is a managing partner, executive officer, or direc-
  5        tor  of a person liable under subsections (b) through (f) of this section,
  6        including an individual having a  similar  status  or  performing  similar
  7        functions,  unless  the  individual  sustains the burden of proof that the
  8        individual did not know and, in the exercise of reasonable care could  not
  9        have  known,  of the existence of conduct by reason of which the liability
 10        is alleged to exist;
 11        (3)  An individual who is an employee of or associated with a person  lia-
 12        ble  under  subsections (b) through (f) of this section and who materially
 13        aids the conduct giving rise to the liability, unless the individual  sus-
 14        tains  the  burden  of  proof that the individual did not know and, in the
 15        exercise of reasonable care could not have known, of the existence of con-
 16        duct by reason of which the liability is alleged to exist; and
 17        (4)  A person that is  a  broker-dealer,  agent,  investment  adviser,  or
 18        investment  adviser representative that materially aids the conduct giving
 19        rise to the liability under subsections (b) through (f) of  this  section,
 20        unless  the  person  sustains  the burden of proof that the person did not
 21        know and, in the exercise of reasonable care could not have known, of  the
 22        existence of conduct by reason of which liability is alleged to exist.
 23        (h)  Right of contribution. A person liable under this section has a right
 24    of  contribution as in cases of contract against any other person liable under
 25    this section for the same conduct.
 26        (i)  Survival of cause of action. A cause of  action  under  this  section
 27    survives the death of an individual who might have been a plaintiff or defend-
 28    ant.
 29        (j)  Statute of limitations. A person may not obtain relief:
 30        (1)  Under  subsection  (b)  of  this  section  for  violation  of section
 31        30-14-301, Idaho Code, or under subsection (d) or  (e)  of  this  section,
 32        unless  the  action  is instituted within one (1) year after the violation
 33        occurred; or
 34        (2)  Under subsection (b) of this section, other  than  for  violation  of
 35        section 30-14-301, Idaho Code, or under subsection (c) or (f) of this sec-
 36        tion,  unless the action is instituted within the earlier of two (2) years
 37        after discovery of the facts constituting the violation or five (5)  years
 38        after the violation.
 39        (k)  No  enforcement of violative contract. A person that has made, or has
 40    engaged in the performance of, a contract in violation of this  chapter  or  a
 41    rule  adopted  or  an  order issued under this chapter, or that has acquired a
 42    purported right under the contract with knowledge  of  conduct  by  reason  of
 43    which its making or performance was in violation of this chapter, may not base
 44    an action on the contract.
 45        (l)  No contractual waiver. A condition, stipulation, or provision binding
 46    a  person  purchasing  or selling a security or receiving investment advice to
 47    waive compliance with this chapter or a rule adopted or an order issued  under
 48    this chapter is void.
 49        (m)  Survival  of  other  rights or remedies. The rights and remedies pro-
 50    vided by this chapter are in addition to any other rights or remedies that may
 51    exist, but this chapter does not create a cause of  action  not  specified  in
 52    this section or section 30-14-411(eg), Idaho Code.

 53        SECTION 5.  That Section 30-14-607, Idaho Code, be, and the same is hereby
 54    amended to read as follows:

                                       10

  1        30-14-607.  PUBLIC  RECORDS  -- CONFIDENTIALITY. (a) Presumption of public
  2    records. Except as otherwise provided  in  subsection  (b)  of  this  section,
  3    records obtained by the administrator or filed under this chapter, including a
  4    record  contained  in  or  filed  with  a registration statement, application,
  5    notice filing, or report, are public records  and  are  available  for  public
  6    examination.
  7        (b)  Nonpublic  records.  Records  as  set  forth in section 9-340H, Idaho
  8    Code, are not public records and are  not  available  for  public  examination
  9    under subsection (a) of this section.
 10        (c)  Administrator  discretion  to disclose. If disclosure is for the pur-
 11    pose of a civil, administrative, or criminal investigation,  action,  or  pro-
 12    ceeding  or  to  a  person  specified in section 30-14-608(a), Idaho Code, the
 13    administrator may disclose a record obtained in connection with  an  audit  or
 14    inspection  under  section  30-14-411(df), Idaho Code, or a record obtained in
 15    connection with an investigation under section 30-14-602, Idaho Code.

Statement of Purpose / Fiscal Impact



                       STATEMENT OF PURPOSE

                              RS 17360

These amendments are in response to a recent Idaho Supreme Court 
decision that concluded the Department of Finance did not have 
authority to review the books and records of broker-dealer 
agents (stockbrokers). This same language would apply to 
investment adviser representatives. The proposed changes provide 
the Department of Finance with this authority.



                             FISCAL NOTE

No fiscal impact.





CONTACT
Name:	Marilyn Chastain
Agency:	Finance, Dept. of
Phone:	332-8070


STATEMENT OF PURPOSE/FISCAL NOTE	                   S 1255