A meeting of the State Securities Board was held on August 1, 2019, in Room 600, Thomas Jefferson Rusk State Office Building, at 9:00 a.m. Those present were: E. Wally Kinney, Member; Member; Miguel Romano, Jr., Member; Kenny Koncaba, Member; Robert Belt, Member; Travis J. Iles, Securities Commissioner; Clinton Edgar, Deputy Commissioner; Tommy Green, Director, Inspections and Compliance Division; Derek Lauterjung, Director, Staff Services Division; Joseph J. Rotunda, Director, Enforcement Division; Marlene K. Sparkman, General Counsel; Tina Lawrence, Assistant Director, Enforcement Division; Emily Diaz, Assistant Director, Registration Division; Shaun Yarroll, Assistant Director, Registration Division; Cheryn Netz, Assistant General Counsel; Misty Smith, Assistant Director, Staff Services Division; Robert Elder, Communications and Investor Education; Cristi Ochoa, Attorney, Inspections and Compliance Division; and Lena Proft, Staff Attorney, General Counsel Division.  Also attending was Rene Gonzalez.

Mr. Kinney, acting as Chair in Ms. Blackwood’s absence, called the meeting to order at 9:10 a.m.

Minutes of the November 13, 2018, meeting were approved.

The Board voted to excuse Chair Blackwood’s absence from the meeting.

The Chair decided to take Item 4 on the Agenda first.  The Audit Committee reported on the Agency’s Internal Audit Plan for Fiscal Year 2019, prepared by Garza/Gonzalez and Associates and the Board voted to approve the Plan.  The Board then voted to retain Mr. Kinney as a member of the Audit Committee and added Mr. Belt as Chair of the Committee.

The Board voted to adopt the following proposed rules:

1.          Repeal of §139.25, Intrastate Crowdfunding Exemption.

2.          Repeal of Form 133.17, Crowdfunding Exemption Notice, used to claim the exemption in §139.25.

3.          Amendment to §113.14(b), concerning statements of policy, to update the rule to reflect recent revisions to the NASAA Statements of Policy for  Corporate Securities Definitions; Loans and Other Material Transactions; Underwriting Expenses, Underwriter’s Warrants, Selling Expenses and Selling Security Holders; and Unsound Financial Condition; and to correct the placement of an apostrophe.

4.          Amendment to §101.6, concerning the historically underutilized business program, to update the cross-reference to the Comptroller’s rules.

5.          Amendment to §103.5, concerning petitions, to include a reference to the Texas Government Code and to collect information on the economic, fiscal, employment, and cost impact of the proposal, to the extent that such information is available to the petitioner.

6.          Amendment to §104.5, concerning registration of dealers and investment advisers-review of applications, to update the procedures to adjust for the recent reorganization of the Registration Division and to more closely mirror the review process in §104.4.

The Board voted to publish for public comment the following new rule proposals:

1.          Amending §115.1(b), concerning general provisions; §115.2(c), concerning application requirements, and §115.4(a), concerning evidences of registration; to remove the registration requirement for branch offices and replace it with a notification requirement.

2.          Amending §116.1(b), concerning general provisions; §116.2(c), concerning application requirements; and §116.4(a), concerning evidences of registration; to remove the registration requirement for branch offices and replace it with a notification requirement.

3.          New §115.22, concerning electronic submission of applications and fees, to provide dealer and agent applicants with the option to submit certain documents and fees electronically.

4.          New §116.22, concerning electronic submission of applications and fees, to provide investment adviser and investment adviser representative applicants with the option to submit certain documents and fees electronically.

5.          Amending §109.13(l)(9)(A), concerning limited offering exemptions, to remove the requirement that Form 133.29 be sworn.

6.          Amending §114.4(a), (b), and (f), concerning filings and fees, to remove the requirement that these notice filings be verified under oath.

7.          Amending §115.2(a)(4), concerning application requirements, to permit a dealer applicant’s principal financial officer to certify that the balance sheet submitted with the dealer’s application is true and correct.

8.          Amending §116.2(a)(2)(B), concerning application requirements, to permit an investment adviser applicant’s principal financial officer to certify that the balance sheet submitted with the adviser’s application is true and correct.

9.          New Forms to be signed under penalty of perjury and certified as true and correct, rather than notarized:

    Form 133.5, Secondary Exemption Trading Notice;

    Form 133.6, Secondary Trading Exemption Renewal Notice;

    Form 133.8, Consent to Service;

    Form 133.12, Renewal Application for Mutual Funds and Other Continuous Offerings;

    Form 133.13, Application for Renewal Permit;

    Form 133.16, Texas Crowdfunding Portal Withdrawal of Registration;

    Form 133.18, Certification of Balance Sheet by Principal Financial Officer;

    Form 133.26, Request for Determination of Money Market Fund Status for Federal Covered Securities;

    Form 133.29, Intrastate Exemption Notice;

    Form 133.30, Information Concerning Projected Market Prices and Related Market Information;

    Form 133.34, Undertaking Regarding Non-Issuer Sales;

    Form 133.35, Application for Designation as Matching Service Under §109.15;

    Form 133.36, Request for Reduced Fees for Certain Persons Registered in Multiple Capacities.

    Additionally, the title for Form 133.8 would also be changed to reflect that it operates as a consent to service, required by Section 8 of the Texas Securities Act.

10.        Repeal current forms that are being replaced:

    Form 133.5, Secondary Exemption Trading Notice;  

    Form 133.6, Secondary Trading Exemption Renewal Notice;

    Form 133.8, Power of Attorney;

    Form 133.12, Renewal Application for Mutual Funds and Other Continuous Offerings;

    Form 133.13, Application for Renewal Permit;

    Form 133.16, Texas Crowdfunding Portal Withdrawal of Registration;

    Form 133.18, Certification of Balance Sheet by Principal Financial Officer;

    Form 133.26, Request for Determination of Money Market Fund Status for Federal Covered Securities;

    Form 133.29, Intrastate Exemption Notice; Form 133.30, Information Concerning Projected Market Prices and Related Market Information;

    Form 133.34, Undertaking Regarding Non-Issuer Sales;

    Form 133.35, Application for Designation as Matching Service Under §109.15;

             Form 133.36, Request for Reduced Fees for Certain Persons Registered in Multiple Capacities.

11.        New §103.6. Negotiated Rulemaking.

12.        Amending §113.1, concerning qualification of securities, to delete the reference to SEC Regulation B, which has been repealed. Amending §113.4(c), concerning application for registration, to eliminate paragraph (3) relating to the Securities Registration Depository (“SRD”) System and remove a cross-reference to the eliminated paragraph. Amending §113.11(b)(1), concerning shelf registration of securities, to remove the reference to SEC Form S-2, which the SEC no longer uses.

13.        Amending §114.3, concerning consents to service of process, to remove subsection (c) relating to the SRD System. Amending §114.4(a) and (b), concerning filings and fees, to permit unit investment trusts to file Form NF electronically through the EFD System, and to add a new paragraph (b)(5) to specifically address federal covered securities offered pursuant to SEC Regulation A, Tier II (Regulation A+).

14.        Amending §133.33, concerning uniform forms accepted, required, or recommended, to add the Regulation A - Tier 2 form to the list of uniform forms accepted.

15.        Amending §115.18 concerning special provisions relating to military applicants, to implement Senate Bill 1200 relating to military spouses.

16.        Amending §116.18, concerning special provisions relating to military applicants, to implement Senate Bill 1200 relating to military spouses.

17.        New Forms 133.22, Waiver or Refund Request by a Military Spouse for a Renewal Fee, and 133.23, Request for Recognition of Out-Of-State License or Registration by a Military Spouse.

18.        Amending §115.6, concerning registration of persons with criminal backgrounds, to implement House Bill 1342.

19.        Amending §116.6, concerning registration of persons with criminal backgrounds, to implement House Bill 1342.

20.        Amending §104.7, concerning preliminary consideration of license eligibility, to implement House Bill 1342.

The Board reviewed and voted to re-adopt the following rule chapters pursuant to the Agency’s rule review plan:

1.          Chapter 113. Registration of Securities.

2.          Chapter 114. Federal Covered Securities.

3.          Chapter 123. Administrative Guidelines for Registration of Open-End Investment Companies.

4.          Chapter 125. Minimum Disclosures in Church and Nonprofit Institution Bond Issues.

5.          Chapter 135. Industrial Development Corporations and Authorities.

6.          Chapter 137. Administrative Guidelines for Regulation of Offers.

7.          Chapter 105. Rules of Practice in Contested Cases.

8.          Chapter 106. Guidelines for the Assessment of Administrative Fines.

9.          Chapter 107. Terminology.

10.        Chapter 127. Miscellaneous.

11.        Chapter 131. Guidelines for Confidentiality of Information.

The Board acknowledged and accepted a grant from the Investor Protection Trust for $31,550.00 for updating the Texas Investor Guide: Strategies for Investing Wisely and Avoiding Fraud.  The Board also received information on a prospective grant for $44,700 from the Investor Protection Trust (for updating The Investor Guide for 2020 and creation of an e-book version of the publication) and voted to preapprove that grant.

The Commissioner provided an update on the conclusion of the 86th Legislative Session, including an overview of several bills affecting the Agency.  The Commissioner also reported on the Agency’s appropriations for the next biennium and approval by the Legislature of several of the exceptional item requests from the Agency’s legislative appropriations request.

The Commissioner gave a report on the Agency’s budget and reviewed the 3Q2019 performance measures with the Board.

The Commissioner gave a general update on Agency operations, addressing and providing information on recent investor education outreach, Agency staff’s participation in NASAA, recent administrative orders and criminal prosecutions, and the Agency’s annual in-house training.

Draft resolutions honoring recently retired Board members Alan Waldrop and David A. Appleby were provided to the Board.  The Board voted to adopt the resolutions and directed that the resolutions be included in the Minutes.  The resolutions will be attached to the Minutes of this meeting.

The Board retired to executive session at 11:38 a.m. to discuss the performance review of the Securities Commissioner pursuant to the exception granted by Section 551.074 of the Texas Government Code, Open Meetings Act.

Following the executive session, the Board reconvened the open meeting at 12:16 p.m. and noted their approval of the Commissioner’s job performance.  The Board noted the challenges faced by the Commissioner over the last year, including the Agency’s Sunset review and the Legislative Session, and acknowledged that Commissioner Iles had done an excellent job.  The Board was particularly impressed with the way the Commissioner was able to get everything done with the staffing level.  The Board went on to recommend that the Commissioner’s salary be increased 10 percent, effective September 1, 2019.

The Board then discussed possible times and dates for future Board meetings and selected 10:00 a.m on October 22, 2019, February 6, 2020, May 19, 2020, and October 8, 2020.

The meeting was then adjourned at 12:37.    

STATE SECURITIES BOARD RESOLUTION

      WHEREAS, THE HONORABLE ALAN WALDROP, of Austin, Texas, served the public of Texas with honor and distinction as a Member of the Texas State Securities Board from June 24, 2011, until his retirement on May 20, 2019; and

      WHEREAS Judge Waldrop served with dedication and wisdom in such office, and brought to it sound knowledge and understanding in formulating policies that have served the industry and the investing public well; and

      WHEREAS, Judge Waldrop, an outstanding citizen of the State of Texas, has contributed many hours of his valuable time and talent and has given service of the highest quality to this Agency, skillfully discharging the duties of his position of public trust and confidence; and

      WHEREAS, Judge Waldrop has been a consistent supporter of the Agency as an institution and for measures that would preserve and enhance the reputation of the Agency and enable the vigorous enforcement of the Texas Securities Act to protect the investing public; and

      WHEREAS, Judge Waldrop has left an indelible impression upon the Board and Agency Staff through his insistence upon integrity and transparency at the Agency and his regard for fundamental fairness and the rights of all persons with whom the Agency comes in contact; and

      WHEREAS, His wise counsel, impartiality, and devotion to duty have contributed to the maintenance of confidence of investors in Texas securities markets; and

      WHEREAS, All who have known Judge Waldrop at the Texas State Securities Board know him as a thoughtful gentleman and man of keen insight and are proud to have his friendship; and

      WHEREAS, His high standards of professional conduct will continue to serve as an inspiration and guide to all who were privileged to serve with him;

      NOW, THEREFORE, BE IT RESOLVED That the Board Members and all personnel of the Texas State Securities Board hereby acknowledge their respect and admiration for Alan Waldrop, and acknowledge the contribution made by him to all citizens of Texas through his service to the State of Texas as a Member of this Board.

      AND BE IT FURTHER RESOLVED that this Resolution be included in the official minutes of the August 1, 2019, meeting of the State Securities Board.

STATE SECURITIES BOARD RESOLUTION

      WHEREAS, THE HONORABLE DAVID A. APPLEBY, of El Paso, Texas, served the public of Texas with honor and distinction as a Member of the Texas State Securities Board from May 24, 2011, until his retirement on May 27, 2019; and

      WHEREAS, Mr. Appleby served with dedication and thoroughness in such office, and brought to it a balanced and sympathetic understanding of the myriad problems facing investors, entrepreneurs, and the business community; and

      WHEREAS, Mr. Appleby, contributed many hours of his valuable time and has, by example and direction, given service of the highest quality to this Agency, fulfilling his charge of public trust and confidence; and

      WHEREAS, Mr. Appleby, a certified public accountant, served on the Board’s Audit Committee from July 20, 2011, until his retirement in 2019, providing the Agency with valuable guidance and insight and has refined and improved the transparency of Agency reporting; and

      WHEREAS, His wise counsel, unfailing devotion to duty and fairness to the investing public and industry alike have preserved the confidence of public investors in the Texas securities markets; and

      WHEREAS, Mr. Appleby has been a consistent supporter of the Agency as an institution and an advocate for measures that would preserve and enhance the reputation of the Agency; and

      WHEREAS, Texas is a better place for both investors and business as a result of Mr. Appleby’s service on the Board; and

      WHEREAS, Mr. Appleby has left an indelible impression upon the Board and Agency Staff through his unselfish devotion to duty and personal example of integrity, courage, and impartiality; and

      WHEREAS, All who have known Mr. Appleby at the Texas State Securities Board know him as a gentleman and a friend, a man of thoughtful insight, compassion, and humor; and

      WHEREAS, His example and conduct will continue to serve as an inspiration and guide to all who were privileged to serve with him;

      NOW THEREFORE, BE IT RESOLVED That the Board members and all personnel of the Texas State Securities Board here by acknowledge their respect and admiration for David A. Appleby, and acknowledge the contribution made by him to all citizens of Texas through his service to the State of Texas as a Member of the Board.

            AND BE IT FURTHER RESOLVED that this Resolution be included in the official minutes of the August 1, 2019, meeting of the State Securities Board.