TITLE 7. BANKING AND SECURITIES
PART 7. STATE SECURITIES BOARD
CHAPTER 113. REGISTRATION OF SECURITIES
7 TAC §113.14
The Texas State Securities Board proposes an amendment to §113.14, concerning Statements of Policy. The amendment would adopt by reference certain updated North American Securities Administrators Association ("NASAA") statements of policy ("SOPs") that were amended by NASAA on September 11, 2016, and a new SOP that was adopted by NASAA on May 8, 2017. The amendment would also update the reference to the Agency's website in subsection (c).
Clint Edgar, Director, Registration Division, has determined that for the first five-year period the rule is in effect there will be no foreseeable fiscal implications for the state or local government as a result of enforcing or administering the rule.
Mr. Edgar also has determined that for each year of the first five years the rule is in effect the public benefit anticipated as a result of enforcing the rule will be to increase uniformity with other states when reviewing applications to register securities. There will be no adverse economic effect on micro- or small businesses or rural communities. Since the rule will have no adverse economic effect on micro- or small businesses or rural communities, preparation of an economic impact statement and a regulatory flexibility analysis is not required. There is no anticipated economic cost to persons who are required to comply with the rule as proposed. There is no anticipated impact on local employment.
Mr. Edgar has determined that for the first five-year period the rule is in effect: it does not create or eliminate a government program; it does not require the creation or elimination of existing employee positions; it does not require an increase or decrease in future legislative appropriations to this agency; it does not require an increase or decrease in fees paid to this agency; it does not increase or decrease the number of individuals subject to the rule's applicability; and it does not positively or negatively affect the state's economy. The rule as proposed does not create a new regulation, and it does not limit or repeal an existing regulation. It expands an existing regulation to adopt a new SOP that was adopted by NASAA.
Comments on the proposal must be in writing and will be accepted for 30 days following publication of the proposed section in the Texas Register. Comments should be sent to Marlene K. Sparkman, General Counsel, State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167, or sent by facsimile to (512) 305-8336. Comments may also be submitted electronically to proposal@ssb.texas.gov. In order to be considered by the Board at adoption, comments must be received no later than 30 days following publication.
The amendment is proposed under Texas Civil Statutes, Article 581-28-1. Section 28-1 provides the Board with the authority to adopt rules and regulations necessary to carry out and implement the provisions of the Texas Securities Act, including rules and regulations governing registration statements and applications; defining terms; classifying securities, persons, and matters within its jurisdiction; and prescribing different requirements for different classes.
The proposal affects Texas Civil Statutes, Article 581 7.
§113.14.Statements of Policy.
(a) (No change.)
(b) In order to promote uniform regulation, the following NASAA Statements of Policy shall apply to the registration of securities:
(1) - (4) (No change.)
(5) Preferred Stock, as amended by NASAA on September 11, 2016 [March 31, 2008];
(6) Promoter's Equity Investment, as amended by NASAA on September 11, 2016 [March 31, 2008];
(7) (No change.)
(8) Specificity in Use of Proceeds, as amended by NASAA on September 11, 2016 [March 31, 2008];
(9) - (10) (No change.)
(11) Unequal Voting Rights, as amended by NASAA on September 11, 2016 [March 31, 2008];
(12) - (18) (No change.)
(19) Omnibus Guidelines, as amended by NASAA on May 7, 2007; [and]
(20) Registration of Commodity Pool Programs, as amended by NASAA on May 6, 2012; and
(21) Use of Electronic Offering Documents and Electronic Signatures, adopted by NASAA on May 8, 2017.
(c) Copies of the NASAA Statements of Policy are available online at the NASAA web site (www.nasaa.org) and the Texas State Securities Board web site (www.ssb.texas.gov) [(www.ssb.state.tx.us) ]. Print copies may be obtained by contacting the Texas State Securities Board, P.O. Box 13167, Austin, Texas 78711, or by calling (512) 305-8300.
The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.
Filed with the Office of the Secretary of State on November 27, 2017.
TRD-201704803
Travis Iles
Securities Commissioner
State Securities Board
Earliest possible date of adoption: January 14, 2018
For further information, please call: (512) 305-8303
CHAPTER 115. SECURITIES DEALERS AND AGENTS
7 TAC §115.19, §115.20
The Texas State Securities Board proposes amendments to §115.19, concerning Texas crowdfunding portal registration and activities, and §115.20, concerning Texas crowdfunding portal registration and activities of small business development entities. A new related rule, §139.26, creating a new intrastate crowdfunding offering exemption, is being concurrently proposed, as are new related forms for portal registration.
The amendment to subsection (a)(2) of §115.19 would allow Texas crowdfunding portals to offer and sell securities by issuers using either of the Texas intrastate crowdfunding offering exemptions. The amendment to subsection (b) of §115.19 would limit the website requirements of the rule to §139.25 offerings. The amendments to subsections (c) and (d) of §115.19 would add cross references to the new §139.26 exemption.
Subsections (a)(3) and (b) of §115.20 would be amended to allow Texas crowdfunding portals that are small business development entities to offer and sell securities by issuers claiming either of the Texas intrastate crowdfunding offering exemptions.
Clint Edgar, Director, Registration Division, has determined that for the first five-year period the rules are in effect there will be no foreseeable fiscal implications for the state or local government as a result of enforcing or administering the rules.
Mr. Edgar also has determined that for each year of the first five years the rules are in effect the public benefit anticipated as a result of enforcing the rules will be to allow Texas crowdfunding portals to sell securities offerings by issuers claiming either of the Texas intrastate crowdfunding offering exemptions.
There will be no adverse economic effect on micro- or small businesses or rural communities. Since the rules will have no adverse economic effect on micro- or small businesses or rural communities, preparation of an economic impact statement and a regulatory flexibility analysis is not required. There is no anticipated economic cost to persons who are required to comply with the rules as proposed. There is no anticipated impact on local employment.
Mr. Edgar has determined that for the first five-year period the rules are in effect: they do not create or eliminate a government program; they do not require the creation or elimination of existing employee positions; they do not require an increase or decrease in future legislative appropriations to this agency; they do not require an increase or decrease in fees paid to this agency; they do not increase or decrease the number of individuals subject to the rules' applicability; and they do not positively or negatively affect the state's economy. The amendments as proposed do not create new regulations, and they do not limit or repeal existing regulations. They expand existing regulations to allow Texas crowdfunding portals to offer and sell securities by issuers using either of the Texas crowdfunding offering exemptions.
Comments on the proposal must be in writing and will be accepted for 30 days following publication of the proposed sections in the Texas Register. Comments should be sent to Marlene K. Sparkman, General Counsel, State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167, or sent by facsimile to (512) 305-8336. Comments may also be submitted electronically to proposal@ssb.texas.gov. In order to be considered by the Board at adoption, comments must be received no later than 30 days following publication.
The amendments are proposed under Texas Civil Statutes, Article 581-28-1. Section 28-1 provides the Board with the authority to adopt rules and regulations necessary to carry out and implement the provisions of the Texas Securities Act, including rules and regulations governing registration statements and applications; defining terms; classifying securities, persons, and matters within its jurisdiction; and prescribing different requirements for different classes. The amendment to §115.20 is also proposed under Texas Civil Statutes, Article 581-44. Section 44 provides the Board with the authority to adopt rules to regulate and facilitate online intrastate crowdfunding by authorized small business development entities.
The proposals affect Texas Civil Statutes, Articles 581-12, 581-13, 581-14, 581-15, 581-18, and 581-44.
§115.19.Texas Crowdfunding Portal Registration and Activities.
(a) Intrastate portal. A Texas crowdfunding portal:
(1) (No change.)
(2) must limit its activities to operating an Internet website utilized to offer and sell securities exempt from registration pursuant to §139.25 of this title (relating to Intrastate Crowdfunding Exemption) and/or §139.26 of this title (relating to Intrastate Crowdfunding Exemption for SEC Rule 147A Offerings); and
(3) (No change.)
(b) Internet website. The Internet website operated by the Texas crowdfunding portal must meet the following requirements:
(1) if the issuer is utilizing the exemption provided by §139.25 of this title (relating to Intrastate Crowdfunding Exemption) the website must contain:
(A) a disclaimer that reflects that access to securities offerings on the website is limited to Texas residents and offers and sales of the securities appearing on the website are limited to persons that are Texas residents;
(B) [(2)] an affirmative representation by a visitor to the Internet website that the visitor is a resident of Texas is required before the visitor can view securities-related offering materials on the website;
(C) [(3)] evidence of residency within Texas is required before a sale is made to a prospective purchaser. An affirmative representation made by a prospective purchaser that the prospective purchaser is a Texas resident and proof of at least one of the following would be considered sufficient evidence that the individual is a resident of this state:
(i) [(A)] a valid Texas driver license or official personal identification card issued by the State of Texas;
(ii) [(B)] a current Texas voter registration; or
(iii) [(C)] general property tax records showing the individual owns and occupies property in this state as his or her principal residence;
(2) [(4)] prior to offering an investment opportunity to residents of Texas and throughout the term of the offering, the portal shall give the Securities Commissioner access to the Internet website; and
(3) [(5)] prior to permitting an investment in any securities listed on the Internet website, the portal shall obtain an affirmative acknowledgment from the investor of the following:
(A) There is no ready market for the sale of the securities acquired from this offering; it may be difficult or impossible for an investor to sell or otherwise dispose of this investment. An investor may be required to hold and bear the financial risks of this investment indefinitely;
(B) The securities have not been registered under federal or state securities laws and, therefore, cannot be resold unless the securities are registered or qualify for an exemption from registration under federal and state law;
(C) In making an investment decision, investors must rely on their own examination of the issuer and the terms of the offering, including the merits and risks involved; and
(D) No federal or state securities commission or regulatory authority has confirmed the accuracy or determined the adequacy of the disclosure statement or any other information on this Internet website.
(c) Prohibited activities. A Texas crowdfunding portal shall not:
(1) - (2) (No change.)
(3) hold, manage, possess or otherwise handle investor funds or securities, except through the use of a segregated account if permitted under §139.25(f) of this title (relating to Intrastate Crowdfunding Exemption) or §139.26(e) of this title (relating to Intrastate Crowdfunding Exemption for SEC Rule 147A Offerings). When a segregated account is used to hold investor payments, the portal must disclose this to prospective purchasers and investors along with a statement that the portal, in administering the segregated account, must:
(A) be responsible for the prudent processing, safeguarding, and accounting for funds entrusted to the portal by the investors and the issuer;
(B) act to the advantage of and in the best interests of the investors and the issuer; and
(C) ensure that all requirements of the Account Agreement between the portal and the issuer are met before funds are disbursed from the segregated account;
(4) - (6) (No change.)
(d) Background and regulatory checks. Prior to offering securities to residents of Texas, the Texas crowdfunding portal shall conduct a reasonable investigation of the background and regulatory history of each issuer whose securities are offered on the portal's Internet website and of each of the issuer's control persons. "Control persons" for purposes of this subsection means the issuer's officers; directors; or other persons having the power, directly or indirectly, to direct the management or policies of the issuer, whether by contract or otherwise; and persons holding more than 20% of the outstanding equity of the issuer. The portal must deny an issuer access to its Internet website if the portal has a reasonable basis for believing that:
(1) the issuer or any of its control persons is subject to a disqualification under §139.25 of this title (relating to Intrastate Crowdfunding Exemption) or under §139.26 of this title (relating to Intrastate Crowdfunding Exemption for SEC Rule 147A Offerings);
(2) - (3) (No change.)
(e) - (f) (No change.)
§115.20.Texas Crowdfunding Portal Registration and Activities of Small Business Development Entities.
(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.
(1) - (2) (No change.)
(3) Crowdfunding Web Portal--The Internet website of a Registered Small Business Development Entity through which offers and sales of securities exempt from registration pursuant to §139.25 of this title (relating to Intrastate Crowdfunding Exemption) and/or §139.26 of this title (relating to Intrastate Crowdfunding Exemption for SEC Rule 147A Offerings) are made.
(4) (No change.)
(b) Securities offered and sold. A Registered Small Business Development Entity must limit the securities offered and sold on its Crowdfunding Web Portal to those of issuers located within its service area. Such securities must be exempt from securities registration pursuant to §139.25 of this title (relating to Intrastate Crowdfunding Exemption) and/or §139.26 of this title (relating to Intrastate Crowdfunding Exemption for SEC Rule 147A Offerings).
(c) - (h) (No change.)
The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.
Filed with the Office of the Secretary of State on November 27, 2017.
TRD-201704804
Travis Iles
Securities Commissioner
State Securities Board
Earliest possible date of adoption: January 14, 2018
For further information, please call: (512) 305-8303
7 TAC §115.21
The Texas State Securities Board proposes new §115.21, concerning system addressing suspected financial exploitation of vulnerable customers pursuant to the Texas Securities Act, Section 45. New §115.21 would implement Section 45 of the Texas Securities Act, which was added by House Bill 3921, passed during the last legislative session. The bill requires securities dealers and investment advisers to adopt internal policies and procedures on the reporting and assessment requirements and on holding transactions involving the account of a vulnerable adult who was believed to be subject to financial exploitation. The policies and procedures require the entity to report suspected financial exploitation to the Securities Commissioner, and other appropriate agencies.
Subsection (a) of the proposal would alert dealers of the new requirement to adopt policies, programs, plans, or procedures pursuant to Section 45 and requires that such policies be reduced to writing. Subsection (b) sets out the content of the report and the procedure a dealer would follow to make the report to the Securities Commissioner. A template for making the report will be available on the Agency's website.
Tommy Green, Director, Inspections and Compliance Division, and Joe Rotunda, Director, Enforcement Division, have determined that for the first five-year period the rule is in effect there will be no foreseeable fiscal implications for state or local government as a result of enforcing or administering the rule.
Mr. Green and Mr. Rotunda have also determined that for each year of the first five years the rule is in effect the public benefit anticipated as a result of enforcing the rule will be to explicitly inform registered dealers that the procedures required by Section 45 of the Texas Securities Act must be reduced to writing, and to inform them of the content of the reports required to be made under Section 45.
There will be no adverse economic effect on micro- or small businesses or rural communities. Since the rule will have no adverse economic effect on micro- or small businesses or rural communities, preparation of an economic impact statement and a regulatory flexibility analysis is not required. There is no anticipated economic cost to persons who are required to comply with the rule as proposed. There is no anticipated impact on local employment.
Mr. Green and Mr. Rotunda have determined that for the first five-year period the rule is in effect: it does not create or eliminate a government program; it does not require the creation or elimination of existing employee positions; it does not require an increase or decrease in future legislative appropriations to this agency; it does not require an increase or decrease in fees paid to this agency; it does not increase or decrease the number of individuals subject to the rule's applicability; it does not positively or negatively affect the state's economy; and it does not limit, expand or repeal an existing regulation. The rule as proposed creates a new regulation that would implement Section 45 of the Texas Securities Act by: alerting investment advisers of the new requirement to adopt policies, programs, plans, or procedures pursuant to Section 45; requiring that such policies be reduced to writing; and setting out the content of the report and the procedure a dealer would follow to make the report to the Securities Commissioner.
Comments on the proposal must be in writing and will be accepted for 30 days following publication of the proposed section in the Texas Register. Written comments should be submitted to Marlene K. Sparkman, General Counsel, State Securities Board, P.O. Box 13167, Austin, Texas 78711 3167 or faxed to (512) 305 8336. Comments may also be submitted electronically to proposal@ssb.texas.gov. In order to be considered by the Board at adoption, comments must be received no later than 30 days following publication.
The new rule is proposed under Texas Civil Statutes, Article 581-28-1 and Article 582-45.N. Section 28-1 provides the Board with the authority to adopt rules and regulations necessary to carry out and implement the provisions of the Texas Securities Act, including rules and regulations governing registration statements and applications; defining terms; classifying securities, persons, and matters within its jurisdiction; and prescribing different requirements for different classes. Section 45.N provides the Board with the authority to prescribe the form and content of a report of suspected financial exploitation of a vulnerable adult by a dealer or investment adviser.
The proposal affects Texas Civil Statutes, Articles 581-14 and 581 45.
§115.21.System Addressing Suspected Financial Exploitation of Vulnerable Customers Pursuant to the Texas Securities Act, Section 45.
(a) System. Each dealer shall establish, maintain, and enforce a written system of policies, programs, plans, or procedures to address suspected financial exploitation of vulnerable adults. The system must be reasonably designed to achieve compliance with the Texas Securities Act, Section 45.
(b) Reporting. The report of suspected financial exploitation (complaint) required by the Texas Securities Act, Section 45.C, must be made in writing to the Securities Commissioner. The complaint may be in the form of a letter or memorandum and submitted electronically, by facsimile, or any other method designed to assure its prompt receipt. A template for submitting the required information is available on the website of the Texas State Securities Board. The complaint shall include:
(1) the name, age, and address of the vulnerable adult;
(2) the name and address of any person responsible for the care of the vulnerable adult;
(3) the nature and extent of the condition of the vulnerable adult;
(4) the basis of the dealer's knowledge; and
(5) any other relevant information.
The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.
Filed with the Office of the Secretary of State on November 27, 2017.
TRD-201704810
Travis Iles
Securities Commissioner
State Securities Board
Earliest possible date of adoption: January 14, 2018
For further information, please call: (512) 305-8303
CHAPTER 116. INVESTMENT ADVISERS AND INVESTMENT ADVISER REPRESENTATIVES
7 TAC §116.21
The Texas State Securities Board proposes new §116.21, concerning system addressing suspected financial exploitation of vulnerable customers pursuant to the Texas Securities Act, Section 45. New §116.21 would implement Section 45 of the Texas Securities Act, which was added by House Bill 3921, passed during the last legislative session. The bill requires securities dealers and investment advisers to adopt internal policies and procedures on the reporting and assessment requirements and on holding transactions involving the account of a vulnerable adult who was believed to be subject to financial exploitation. The policies and procedures require the entity to report suspected financial exploitation to the Securities Commissioner, and other appropriate agencies.
Subsection (a) of the proposal would alert investment advisers of the new requirement to adopt policies, programs, plans, or procedures pursuant to Section 45 and requires that such policies be reduced to writing. Subsection (b) sets out the content of the report and the procedure an investment adviser would follow to make the report to the Securities Commissioner. A template for making the report will be available on the Agency's website.
Tommy Green, Director, Inspections and Compliance Division, and Joe Rotunda, Director, Enforcement Division, have determined that for the first five-year period the rule is in effect there will be no foreseeable fiscal implications for state or local government as a result of enforcing or administering the rule.
Mr. Green and Mr. Rotunda have also determined that for each year of the first five years the rule is in effect the public benefit anticipated as a result of enforcing the rule will be to explicitly inform registered investment advisers that the procedures required by Section 45 of the Texas Securities Act, must be reduced to writing, and to inform them of the content of the reports required to be made under Section 45.
There will be no adverse economic effect on micro- or small businesses or rural communities. Since the rule will have no adverse economic effect on micro- or small businesses or rural communities, preparation of an economic impact statement and a regulatory flexibility analysis is not required. There is no anticipated economic cost to persons who are required to comply with the rule as proposed. There is no anticipated impact on local employment.
Mr. Green and Mr. Rotunda have determined that for the first five-year period the rule is in effect: it does not create or eliminate a government program; it does not require the creation or elimination of existing employee positions; it does not require an increase or decrease in future legislative appropriations to this agency; it does not require an increase or decrease in fees paid to this agency; it does not increase or decrease the number of individuals subject to the rule's applicability; it does not positively or negatively affect the state's economy; and it does not limit, expand or repeal an existing regulation. The rule as proposed creates a new regulation that would implement Section 45 of the Texas Securities Act by: alerting investment advisers of the new requirement to adopt policies, programs, plans, or procedures pursuant to Section 45; requiring that such policies be reduced to writing; and setting out the content of the report and the procedure an investment adviser would follow to make the report to the Securities Commissioner.
Comments on the proposal must be in writing and will be accepted for 30 days following publication of the proposed section in the Texas Register. Written comments should be submitted to Marlene K. Sparkman, General Counsel, State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 or faxed to (512) 305-8336. Comments may also be submitted electronically to proposal@ssb.texas.gov. In order to be considered by the Board at adoption, comments must be received no later than 30 days following publication.
The new rule is proposed under Texas Civil Statutes, Article 581-28-1 and Article 582-45.N. Section 28-1 provides the Board with the authority to adopt rules and regulations necessary to carry out and implement the provisions of the Texas Securities Act, including rules and regulations governing registration statements and applications; defining terms; classifying securities, persons, and matters within its jurisdiction; and prescribing different requirements for different classes. Section 45.N provides the Board with the authority to prescribe the form and content of a report of suspected financial exploitation of a vulnerable adult by a dealer or investment adviser.
The proposal affects Texas Civil Statutes, Articles 581-14 and 581 45.
§116.21.System Addressing Suspected Financial Exploitation of Vulnerable Customers Pursuant to the Texas Securities Act, Section 45.
(a) System. Each investment adviser shall establish, maintain, and enforce a written system of policies, programs, plans, or procedures to address suspected financial exploitation of vulnerable adults. The system must be reasonably designed to achieve compliance with the Texas Securities Act, Section 45.
(b) Reporting. The report of suspected financial exploitation (complaint) required by the Texas Securities Act, Section 45.C, must be made in writing to the Securities Commissioner. The complaint may be in the form of a letter or memorandum and submitted electronically, by facsimile, or any other method designed to assure its prompt receipt. A template for submitting the required information is available on the website of the Texas State Securities Board. The complaint shall include:
(1) the name, age, and address of the vulnerable adult;
(2) the name and address of any person responsible for the care of the vulnerable adult;
(3) the nature and extent of the condition of the vulnerable adult;
(4) the basis of the investment adviser's knowledge; and
(5) any other relevant information.
The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.
Filed with the Office of the Secretary of State on November 27, 2017.
TRD-201704811
Travis Iles
Securities Commissioner
State Securities Board
Earliest possible date of adoption: January 14, 2018
For further information, please call: (512) 305-8303
CHAPTER 133. FORMS
7 TAC §133.15, §133.20
The Texas State Securities Board proposes the repeal of §133.15, which adopts by reference the Texas Crowdfunding Portal Registration form and the repeal of §133.20, which adopts by reference the Texas Crowdfunding Portal Registration by an Authorized Small Business Development Entity form. Repeal of the existing forms would allow for the simultaneous adoption of new forms, which are being concurrently proposed.
Clint Edgar, Director, Registration Division, has determined that for the first five-year period the repeals are in effect there will be no foreseeable fiscal implications for state or local government as a result of enforcing or administering the repeals.
Mr. Edgar also has determined that for each year of the first five years the repeals are in effect the public benefit anticipated as a result of enforcing the repeals will be that the registration forms will properly reflect a Texas crowdfunding portal can sell securities offerings by issuers claiming either the existing intrastate exemption in §139.25 or the proposed new intrastate crowdfunding exemption in §139.29.
There will be no adverse economic effect on micro- or small businesses or rural communities. Since the repeals will have no adverse economic effect on micro- or small businesses or rural communities, preparation of an economic impact statement and a regulatory flexibility analysis is not required. There is no anticipated economic cost to persons who are required to comply with the repeals as proposed. There is no anticipated impact on local employment.
Mr. Edgar has determined that for the first five-year period the repeals of the rules adopting by reference the forms are in effect: they do not create or eliminate a government program; they do not require the creation or elimination of existing employee positions; they do not require an increase or decrease in future legislative appropriations to this agency; they do not require an increase or decrease in fees paid to this agency; they do not increase or decrease the number of individuals subject to the rules' applicability; they do not positively or negatively affect the state's economy; they do not create a new regulation; and they do not limit or expand an existing regulation. The repeals repeal existing regulations concerning forms adopted by reference to allow for the simultaneous adoption of new regulations concerning forms adopted by reference which are being currently proposed.
Comments on the proposal must be in writing and will be accepted for 30 days following publication of the proposed repeals in the Texas Register. Written comments should be submitted to Marlene K. Sparkman, General Counsel, State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 or faxed to (512) 305-8336. Comments may also be submitted electronically to proposal@ssb.texas.gov. In order to be considered by the Board at adoption, comments must be received no later than 30 days following publication.
The repeals are proposed under Texas Civil Statutes, Article 581-28-1. Section 28-1 provides the Board with the authority to adopt rules and regulations necessary to carry out and implement the provisions of the Texas Securities Act, including rules and regulations governing registration statements and applications; defining terms; classifying securities, persons, and matters within its jurisdiction; and prescribing different requirements for different classes. The repeal of §133.20 is also proposed under Texas Civil Statutes, Article 581-44. Section 44 provides the Board with the authority to adopt rules to regulate and facilitate online intrastate crowdfunding by authorized small business development entities.
The repeals affect Texas Civil Statutes, Articles 581-12, 581-13, 581-14, 581-15, 581-18, and 581-44.
§133.15.Texas Crowdfunding Portal Registration.
§133.20.Texas Crowdfunding Portal Registration by an Authorized Small Business Development Entity.
The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.
Filed with the Office of the Secretary of State on November 27, 2017.
TRD-201704807
Travis Iles
Securities Commissioner
State Securities Board
Earliest possible date of adoption: January 14, 2018
For further information, please call: (512) 305-8303
7 TAC §133.15, §133.20
The Texas State Securities Board proposes two new rules, concerning forms adopted by reference. Specifically, the State Securities Board proposes §133.15, which would adopt by reference the Texas Crowdfunding Portal Registration form; and §133.20, which would adopt by reference the Texas Crowdfunding Portal Registration by an Authorized Small Business Development Entity form.
Form 133.15 will be used for filing an original application for registration as a Texas intrastate crowdfunding portal under §115.19, which is being concurrently amended.
Form 133.20 will be used by an authorized small business development entity to apply for registration as a Texas intrastate crowdfunding portal under §115.20, which is being concurrently amended.
New Forms 133.15 and 133.20 are very similar to the existing Forms 133.15 and 133.20, which are being concurrently proposed for repeal, except that Texas crowdfunding entities will be able to use the forms to register as portals to sell securities offered by crowdfunding issuers claiming either the existing intrastate exemption in §139.25 or the proposed new intrastate exemption in §139.26.
Clint Edgar, Director, Registration Division, has determined that for the first five-year period the forms are used, there will be no foreseeable fiscal implications for state or local government as a result of using the forms.
Mr. Edgar also has determined that for each year of the first five years Forms 133.15 and 133.20 are used the public benefit anticipated as a result from enforcing the rules will be that Texas entities will be able to use the forms to register as Texas crowdfunding portals that can sell securities offerings by crowdfunding issuers claiming either the existing intrastate exemption in §139.25 or the proposed new intrastate crowdfunding exemption in §139.26.
There will be no adverse economic effect on micro- or small businesses or rural communities. Since the forms will have no adverse economic effect on micro- or small businesses or rural communities, preparation of an economic impact statement and a regulatory flexibility analysis is not required. There is no anticipated economic cost to persons who are required to use the forms as proposed. There is no anticipated impact on local employment.
Mr. Edgar has determined that for the first five-year period the rules adopting by reference the forms are in effect and the forms are used: they do not create or eliminate a government program; they do not require the creation or elimination of existing employee positions; they do not require an increase or decrease in future legislative appropriations to this agency; they do not require an increase or decrease in fees paid to this agency; they do not increase or decrease the number of individuals subject to the rules' applicability; they do not positively or negatively affect the state's economy; and they do not limit, expand or repeal existing regulations. The rules adopting by reference the forms as proposed create new regulations concerning forms adopted by reference to replace existing regulations concerning forms adopted by reference that are being concurrently proposed for repeal.
Comments on the proposal must be in writing and will be accepted for 30 days following publication of the proposed sections in the Texas Register. Written comments should be submitted to Marlene K. Sparkman, General Counsel, State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 or faxed to (512) 305-8336. Comments may also be submitted electronically to proposal@ssb.texas.gov. In order to be considered by the Board at adoption, comments must be received no later than 30 days following publication.
The new rules are proposed under Texas Civil Statutes, Article 581-28-1. Section 28-1 provides the Board with the authority to adopt rules and regulations necessary to carry out and implement the provisions of the Texas Securities Act, including rules and regulations governing registration statements and applications; defining terms; classifying securities, persons, and matters within its jurisdiction; and prescribing different requirements for different classes. New rule §133.20 is also proposed under Texas Civil Statutes, Article 581-44. Section 44 provides the Board with the authority to adopt rules to regulate and facilitate online intrastate crowdfunding by authorized small business development entities.
The proposals affect Texas Civil Statutes, Article 581-12, 581-13, 581-14, 581-15, 581-18, and 581-44.
§133.15.Texas Crowdfunding Portal Registration.
This form is available from the State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 and at www.ssb.texas.gov.
§133.20.Texas Crowdfunding Portal Registration by an Authorized Small Business Development Entity.
This form is available from the State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 and at www.ssb.texas.gov.
The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.
Filed with the Office of the Secretary of State on November 27, 2017.
TRD-201704805
Travis Iles
Securities Commissioner
State Securities Board
Earliest possible date of adoption: January 14, 2018
For further information, please call: (512) 305-8303
7 TAC §133.21
The Texas State Securities Board proposes a new rule, concerning forms adopted by reference. Specifically, the State Securities Board proposes §133.21, which would adopt by reference the Crowdfunding Exemption Notice (SEC Rule 147A Offerings using §139.26) form.
Form 133.21 will be used by an issuer to file a crowdfunding exemption notice pursuant to §139.26.
Form 133.21 is very similar to Form 133.17 used by an issuer to file a crowdfunding exemption notice pursuant to §139.25, except that Form 133.21 will be used by an issuer to file a crowdfunding exemption notice pursuant to §139.26.
Clint Edgar, Director, Registration Division, has determined that for the first five-year period the form is used, there will be no foreseeable fiscal implications for state or local government as a result of using the form.
Mr. Edgar also has determined that for each year of the first five years the Form 133.21 is used the public benefit anticipated as a result will be that issuers will be able to take advantage of the relaxed requirements of the more flexible intrastate crowdfunding offering exemption in §139.26.
There will be no adverse economic effect on micro- or small businesses or rural communities. Since the form will have no adverse economic effect on micro- or small businesses or rural communities, preparation of an economic impact statement and a regulatory flexibility analysis is not required. There is no anticipated economic cost to persons who are required to use the form as proposed. There is no anticipated impact on local employment.
Mr. Edgar has determined that for the first five-year period the rule adopting by reference the form is in effect and the form is used: it does not create or eliminate a government program; it does not require the creation or elimination of existing employee positions; it does not require an increase or decrease in future legislative appropriations to this agency; it does not require an increase or decrease in fees paid to this agency; it does not increase or decrease the number of individuals subject to the rule's applicability; it does not positively or negatively affect the state's economy; and it does not limit, expand or repeal an existing regulation. The rule adopting by reference the form as proposed creates a new regulation concerning a form adopted by reference to be used by an issuer to file a crowdfunding exemption notice pursuant to §139.26.
Comments on the proposal must be in writing and will be accepted for 30 days following publication of the proposed section in the Texas Register. Written comments should be submitted to Marlene K. Sparkman, General Counsel, State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 or faxed to (512) 305-8336. Comments may also be submitted electronically to proposal@ssb.texas.gov. In order to be considered by the Board at adoption, comments must be received no later than 30 days following publication.
The new rule is proposed under Texas Civil Statutes, Article 581-28-1. Section 28-1 provides the Board with the authority to adopt rules and regulations necessary to carry out and implement the provisions of the Texas Securities Act, including rules and regulations governing registration statements and applications; defining terms; classifying securities, persons, and matters within its jurisdiction; and prescribing different requirements for different classes.
The proposal affects Texas Civil Statutes, Article 581-7.
§133.21.Crowdfunding Exemption Notice (SEC Rule 147A Offerings using §139.26).
This form is available from the State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 and at www.ssb.texas.gov.
The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.
Filed with the Office of the Secretary of State on November 27, 2017.
TRD-201704809
Travis Iles
Securities Commissioner
State Securities Board
Earliest possible date of adoption: January 14, 2018
For further information, please call: (512) 305-8303
CHAPTER 139. EXEMPTIONS BY RULE OR ORDER
7 TAC §139.26
The Texas State Securities Board proposes new §139.26, concerning intrastate crowdfunding exemption for SEC Rule 147A Offerings. The new rule would provide an additional registration exemption for securities offered in an intrastate crowdfunding offering. The filing used to claim the exemption is new Form 133.21, which is being concurrently proposed. Amendments to §115.19 and §115.20, concerning Texas crowdfunding portal registration and activities, are also being concurrently proposed to allow Texas crowdfunding portals to offer and sell exempt securities offered pursuant to the new exemption.
The new rule for offerings under SEC Rule 147A would allow issuers to take advantage of the relaxed intrastate offering and sales requirements of the Rule 147A exemption by providing a corresponding Texas exemption. Under the proposal, the offering must comply with Rule 147A at the federal level. Accordingly, the issuer must have a principal place of business in Texas and the sales must be limited to Texas residents.
The proposal would incorporate much of the flexibility offered under Rule 147A while retaining the safeguards and investor protections built into the existing Texas intrastate crowdfunding structure provided in §139.25. To streamline the proposed rule and to prevent having to amend it as corresponding provisions in Rule 147A change over time, subsection (a) would require the issuer to comply with Rule 147A. Accordingly, the proposed rule does not otherwise repeat requirements for the Rule 147A exemption within the proposed rule.
Subsection (b) of the proposal retains the restrictions in §139.25 which exclude certain issuers from the exemption, including: (1) investment companies, which engage primarily in the business of investing in other securities; (2) SEC reporting companies; and (3) blind pool and blank check companies.
Subsection (c) of the proposal requires that offers and sales of the exempt securities be made through a registered entity (general dealer or Texas crowdfunding portal) and caps the offering amount at $1 million in a 12-month period. Subsection (d) provides that the issuer cannot accept more than $5,000 from a single purchaser unless the purchaser is an accredited investor; and, in order to safeguard investor and issuer funds, subsection (e) requires that funds raised must be placed in an escrow account or a segregated account until the minimum target offering amount specified in the disclosure statement is reached. As with intrastate crowdfunding offerings made pursuant to §139.25, the $1 million offering cap is reduced by the amount of sales made by the issuer within six months preceding the §139.26 offering and within six months following the completion of the §139.26 offering.
Subsection (g) of the proposal requires that information about the offering be posted on the Internet website for a minimum of 21 days before the securities may be sold.
Other safeguards contained in §139.25 that are incorporated into the proposal include requiring communications between the issuer, prospective purchasers, or investors to take place through the communications channel provided on the Internet website of the registered general dealer or registered Texas crowdfunding portal, and to be visible to others on the site; and granting the Securities Commissioner access to the Internet website prior to and during an offering.
Another of the expansions permitted under Rule 147A is that it permits general solicitation and advertising regardless of whether the information can be seen by persons not located in the offering state. In other words, offers need not be limited to Texas residents although sales would be so limited. Accordingly, even though the proposal limits communications to the website channel, as in §139.25, the proposal would permit an issuer to disseminate limited information to persons outside of Texas without jeopardizing the availability of the exemption.
As with offerings under §139.25, the proposal would require a disclosure statement and financial statements be provided to prospective purchasers and incorporates provisions containing disqualifications and prohibiting certain relationships. Material information and risk factors must be disclosed, and topics to be addressed in the disclosure document are noted. Additional guidance for content of the disclosure statement is posted on the Agency's website with other small business and crowdfunding information. Required disclosures, common to crowdfunding offerings generally, are in subsection (h)(2).
Subsection (i) of the proposal requires a notice filing on Form 133.21(Crowdfunding Exemption Notice for SEC Rule 147A Offerings), which is concurrently proposed, along with a copy of the issuer's disclosure statement and the summary of the offering that appear on the Internet website.
Payments to unregistered persons are prohibited by subsection (j), which also prohibits certain compensation arrangements and affiliations between an issuer and the general dealer or Texas crowdfunding portal operating the website on which its offering appears.
Subsection (k) contains two types of disqualifications. Bad actor disqualifications are addressed in subsections (k)(2) and (k)(3). Issuers should be aware that, although a prior incident may not be a disqualification under this proposal, it may still need to be disclosed to potential purchasers and investors if it is material information. Subsection (k)(4) limits availability of the exemption based on activities involving related issuers or affiliates.
Clinton Edgar, Director, Registration Division, has determined that there will be fiscal implications as a result of enforcing or administering the rule on state, but not local, government.
The effect on state government for the first five-year period the rule will be in effect is a potential decrease in revenue. Previously, only issuers incorporated in Texas were allowed to claim the §139.25 exemption. Accordingly, any issuer incorporated outside of Texas was only allowed to claim one of the other exemptions from registration. This includes offerings pursuant to §109.13(k) (Form D) and §109.13(l) (intrastate) that require notice filings as well as other self-executing exemptions. Some issuers currently relying on these exemptions may choose instead to use the proposed exemption.
While §109.13(k) (Form D) and §109.13(l) each require the payment of a notice filing fee (the lesser of $500 or 1/10 of 1.0% of the aggregate amount of securities offered), the proposed rule does not.
In determining the decrease in revenue, it is necessary to consider the number of filings pursuant to these Board Rules made by issuers that would be eligible for the proposed rule. These criteria are: 1) the offering is $1,000,000 or less; 2) the offering is limited to Texas residents; and 3) the offering is made by an issuer incorporated outside of Texas.
The number of filings made pursuant to §109.13(l) and pursuant to §109.13(k) fluctuates every year. Therefore, how much revenue might be lost as a result of issuers switching to the proposed rule is unknown, but it is not likely to be significant.
Since 2014, 17 issuers meeting these criteria filed the notice to claim the exemption in §109.13(k), amounting to $7,407.10 in total revenue. Additionally, one issuer meeting this criterion filed the notice to claim the exemption in §109.13(l), amounting to $500.00 in total revenue. Based on the number of previous filings from 2014 through 2017 made that fit this criterion the decrease in revenue over the first five-year period the rule will be in effect could be approximately $7,900.
Several other self-executing private offering exemptions are also used by small issuers under current law. However, these self-executing exemptions do not require payment of any fee so if an issuer opts to pursue crowdfunding instead of using one of these exemptions, there would be no impact on revenue collected by the Agency.
Mr. Edgar has determined that for each year of the first five years the rule is in effect the public benefit anticipated as a result of enforcing the rule will be to spur small business development in the state by making it easier for entrepreneurs and start-ups to raise capital through Internet crowdfunding by taking advantage of the relaxed requirements of the more flexible intrastate crowdfunding offering exemption in the proposed rule.
The proposed rule is designed to help grow startups and small businesses by making relatively low dollar offerings of securities less costly. Securities offerings in Texas are generally required to be registered, unless an exemption is available, and be sold by registered dealers or agents. The costs of conducting a registered offering, including legal, accounting, and registration fees, can be significant. Offering securities through a private placement exemption can also be complicated and costly. Legal counsel is often needed to ensure that restrictions on general solicitation and general advertising are not violated and purchaser qualification requirements are met. An exempt offering may also have notice filing requirements and fees associated therewith.
There is an anticipated economic cost to entities that are required to comply with the crowdfunding exemption as proposed, including preparing offering documents and disclosure statements, providing current, certified financial statements, and compensating portals for their listing services. Although there is no fee, a notice filing with the Securities Commissioner is also required. While such costs are not insignificant, they are less than the costs associated with registered or private offerings. Therefore, the effect on micro- or small businesses will most likely be a positive one. The anticipated impact on local employment is also expected to be positive. These small businesses, able to raise capital through crowdfunding, may be able to expand and provide additional jobs in the local community. Since the rule will have no adverse economic effect on micro- or small businesses, preparation of an economic impact statement and a regulatory flexibility analysis is not required.
There will be no adverse economic effect on rural communities. Since the rule will have no adverse economic on rural communities, preparation of an economic impact statement and a regulatory flexibility analysis for rural communities is not required.
Mr. Edgar, has determined that for the first five-year period the rule is in effect: it does not create or eliminate a government program; it does not require the creation or elimination of existing employee positions; it does not require an increase or decrease in future legislative appropriations to this agency; it does not require an increase or decrease in fees paid to this agency; it does not increase or decrease the number of individuals subject to the rule's applicability; it does not positively or negatively affect the state's economy; and it does not limit, expand or repeal an existing regulation. The rule as proposed creates a new regulation that provides an additional registration exemption for securities offered in an intrastate crowdfunding offering.
Comments on the proposal must be in writing and will be accepted for 30 days following publication of the proposed section in the Texas Register. Written comments should be submitted to Marlene K. Sparkman, General Counsel, State Securities Board, P.O. Box 13167, Austin, Texas 78711-3167 or faxed to (512) 305-8336. Comments may also be submitted electronically to proposal@ssb.texas.gov. In order to be considered by the Board at adoption, comments must be received no later than 30 days following publication.
The new rule is proposed under Texas Civil Statutes, Articles 581-5.T, 581-12.C, and 581-28-1. Section 5.T provides that the Board may prescribe new exemptions by rule. Section 12.C provides the Board with the authority to prescribe new dealer, agent, investment adviser, or investment adviser representative registration exemptions by rule. Section 28-1 provides the Board with the authority to adopt rules and regulations necessary to carry out and implement the provisions of the Texas Securities Act, including rules and regulations governing registration statements and applications; defining terms; classifying securities, persons, and matters within its jurisdiction; and prescribing different requirements for different classes.
The proposal affects Texas Civil Statutes, Articles 581-7, 581-12, 581-13, 581-14, 581-15, and 581-18.
§139.26.Intrastate Crowdfunding Exemption for SEC Rule 147A Offerings.
(a) General. The State Securities Board, pursuant to the Texas Securities Act (Act), Section 5.T, exempts from the securities registration requirements of the Act, any offer or sale of securities of an issuer made in compliance with Securities and Exchange Commission (SEC) Rule 147A, 17 CFR §230.147A, through a registered general dealer or a registered Texas crowdfunding portal, provided that all the requirements of this section are satisfied.
(b) Issuer. The issuer is not, either before or because of the offering:
(1) A company, that engaged or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in securities;
(2) Subject to the reporting requirements of the Securities and Exchange Act of 1934, Section 13 or Section 15(d), 15 U.S.C. §78m and §78o(d); or
(3) A company that has not yet defined its business operations, has no business plan, has no stated investment goal for the funds being raised, or that plans to engage in a merger or acquisition with an unspecified business entity.
(c) Offering. The offering must be made exclusively through an Internet website operated by a registered general dealer or registered Texas crowdfunding portal. All consideration received for all sales of the securities in reliance on this exemption shall not exceed $1 million in a 12-month period. This amount is reduced by the aggregate amount received for all sales of securities by the issuer in another offering that does not take place prior to the six-month period immediately preceding or after the six-month period immediately following any offers or sales made in reliance upon this section.
(d) Individual investments. The issuer will not accept more than $5,000 from any single purchaser unless the purchaser is an accredited investor as defined in §107.2 of this title (relating to Definitions). The issuer must have a reasonable basis for believing that the purchaser of a security under this section is a Texas resident and, if applicable, an accredited investor.
(e) Escrow or segregated account to safeguard investor and issuer funds.
(1) All payments for purchases of securities offered under this section are directed to and deposited in an escrow account or a segregated account, if a segregated account is permitted under paragraph (2) of this subsection. The payments must be held in an escrow account or a segregated account until the aggregate capital raised from all purchasers is equal to or greater than the minimum target offering amount specified in the disclosure statement as necessary to implement the business plan. Investors will receive a return of all their subscription funds if the target offering amount is not raised by the time stated in the disclosure statement.
(2) A segregated account may be used in lieu of an escrow account if the maximum offering amount is $1 million or less.
(3) For purposes of this subsection:
(A) An "escrow account" is one administered by an independent escrow agent who is a bank or other depository institution.
(B) A "segregated account" is one established by a registered general dealer or a Texas crowdfunding portal pursuant to a written agreement ("Account Agreement") with the issuer and provides that the registered general dealer or portal will act on behalf of the issuer and investors to hold funds raised from investors in a specific securities offering until such time as those funds can be disbursed in accordance with paragraph (1) of this subsection. The Account Agreement must identify the bank or other depository institution and account number where the funds will be held. All signatories on the segregated account must be persons registered with the Securities Commissioner.
(4) The escrow account or segregated account must be in a bank or other depository institution located in Texas and organized and subject to regulation under the laws of the United States or under the laws of Texas.
(5) A separate account must be set up for each securities offering in which a segregated account is used in lieu of an escrow account. The Account Agreement entered into in connection with a segregated account, shall include requirements that the dealer or portal must, and the account shall be, administered in accordance with the following principles requiring the dealer or portal to:
(A) be responsible for prudent processing, safeguarding, and accounting for funds entrusted to it by investors and the issuer;
(B) act to the advantage of and in the best interests of the investors and the issuer; and
(C) ensure that all requirements of the Account Agreement between the portal and issuer are met before funds are disbursed from the segregated account.
(6) The issuer shall inform all prospective purchasers and investors if a segregated account is to be used to hold investor payments. Additionally, a portal must make the disclosures mandated by §115.19(c)(3) of this title (relating to Texas Crowdfunding Portal Registration and Activities).
(f) Communications.
(1) All communications between the issuer, prospective purchasers, or investors taking place during the offer of securities pursuant to this section must occur through the Internet website of the registered general dealer or Texas crowdfunding portal. During the time the offering appears on the Internet website, the website must provide channels through which potential purchasers and investors can communicate with one another and with representatives of the issuer about the offering. These communications must be visible to all those with access to the offering materials on the Internet website.
(2) Notwithstanding the foregoing, the issuer may distribute a notice limited to a statement that the issuer is conducting an offering, the name of the registered general dealer or portal through which the offering is being conducted, and a link directing the potential investor to the dealer or portal's Internet website.
(g) Internet website.
(1) The registered general dealer or registered portal shall give the Securities Commissioner access to the Internet website operated by the dealer or portal prior to offering an investment opportunity to residents of Texas and the website must remain accessible to the Commissioner throughout the term of the offering.
(2) Information about the issuer and the offering posted on the Internet website operated by the registered general dealer or registered portal consists of:
(A) a copy of the disclosure statement required by subsection (h) of this section;
(B) a summary of the offering, including:
(i) a description of the entity, its form of business, principal office, history, business plan, and the intended use of the offering proceeds, including compensation paid to any owner, executive officer, director, or manager;
(ii) the identity of the executive officers, directors, and managers, including their titles and their prior experience and the identity of all persons owning more than 20% of the ownership interests of any class of securities of the company; and
(iii) a description of the securities being offered and of any outstanding securities of the company, the amount of the offering, and the percentage ownership of the company represented by the offered securities.
(3) The information on the Internet website required by paragraph (2) of this subsection must be made available to the Commissioner and potential investors for a minimum of 21 days before any securities are sold in the offering.
(h) Disclosure statement. A disclosure statement must be made readily available and accessible to each prospective purchaser at the time the offer of securities is made to the prospective purchaser on the Internet website. The disclosure statement must contain all of the following:
(1) Material information and risk factors. All information material to the offering, including, where appropriate, a discussion of significant factors that make the offering speculative or risky. Guidance on the categories of information to include can be found by reviewing the small business offering information provided by the Texas State Securities Board on its Internet website. Topics to be addressed include, but are not limited to:
(A) general description of the issuer's business;
(B) history of the issuer's operations and organization;
(C) management of the company and principal stockholders;
(D) how the proceeds from the offering will be used;
(E) financial information about the issuer;
(F) description of the securities being offered; and
(G) litigation and legal proceedings.
(2) Disclosures. The issuer shall inform all prospective purchasers and investors of the following:
(A) There is no ready market for the sale of the securities acquired from this offering; it may be difficult or impossible for an investor to sell or otherwise dispose of this investment. An investor may be required to hold and bear the financial risks of this investment indefinitely;
(B) The securities have not been registered under federal or state securities laws and, therefore, cannot be resold unless the securities are registered or qualify for an exemption from registration under federal and state law;
(C) In making an investment decision, investors must rely on their own examination of the issuer and the terms of the offering, including the merits and risks involved; and
(D) No federal or state securities commission or regulatory authority has confirmed the accuracy or determined the adequacy of the disclosure statement or any other information on this Internet website.
(3) Financial statements. Issuers must provide current financial statements certified by the principal executive officer to be true and complete in all material respects. If the issuer has audited or reviewed financial statements, prepared within the last three years, such financial statements must also be provided to investors.
(i) Notice filing. Before using any publicly available Internet website in an offering of securities in reliance on this section, the issuer shall file with the Securities Commissioner:
(1) Form 133.21, Crowdfunding Exemption Notice;
(2) the disclosure statement, required by subsection (h) of this section;
(3) the summary of the offering, required by subsection (g)(2)(B) of this section; and
(4) if investor funds are to be deposited into a segregated account as permitted by subsection (e) of this section, a copy of the written Account Agreement entered into between the issuer and the registered general dealer or Texas crowdfunding portal that will hold investor funds in the securities offering.
(j) Commissions and remuneration. A commission or other remuneration shall not be paid or given, directly or indirectly, for the offer or sale of the securities unless the person receiving such compensation is registered in Texas as a dealer or agent or as a Texas crowdfunding portal. The issuer may not list its securities on the Internet website of a general dealer or portal that holds an interest in the issuer. The issuer may not compensate a general dealer or a portal by providing a financial interest in the issuer as compensation for services provided to or on behalf of the issuer. A general dealer or portal may not be affiliated with or under common control with an issuer whose securities appear on its Internet website. Nothwithstanding the foregoing, a Registered Small Business Development Entity, as defined in §115.20 of this title (relating to Texas Crowdfunding Portal Registration and Activities of Small Business Development Entities), may have a financial interest in an issuer listed on its Crowdfunding Web Portal, as defined in §115.20.
(k) Disqualifications.
(1) For purposes of this subsection, "control person" means an officer; director; other person having the power, directly or indirectly, to direct the management or policies of the issuer, whether by contract or otherwise; or a person that owns 20% or more of any class of the outstanding securities of the issuer.
(2) This exemption is not available if the issuer, the issuer's predecessors, any affiliated issuer, or any control person of the issuer:
(A) within the last five years, has filed a registration statement which is the subject of a currently effective registration stop order entered by any state securities administrator or the United States Securities and Exchange Commission;
(B) within the last five years, has been convicted of any criminal offense in connection with the offer, purchase, or sale of any security, or involving fraud or deceit;
(C) is currently subject to any state or federal administrative enforcement order or judgment, entered within the last five years, finding fraud or deceit in connection with the purchase or sale of any security; or
(D) is currently subject to any order, judgment, or decree of any court of competent jurisdiction, entered within the last five years, temporarily, preliminarily, or permanently restraining or enjoining such party from engaging in or continuing to engage in any conduct or practice involving fraud or deceit in connection with the purchase or sale of any security.
(3) Paragraph (2) of this subsection shall not apply if:
(A) the party subject to the disqualification is licensed or registered to conduct securities-related business in the state in which the order, judgment, or decree creating the disqualification was entered against such party;
(B) before the first offer under this exemption, the state securities administrator, or the court or regulatory authority that entered the order, judgment, or decree, waives the disqualification; or
(C) the issuer establishes it did not know and exercising reasonable care, based on a factual inquiry, could not have known that a disqualification existed under this subsection.
(4) This exemption is not available to an issuer if:
(A) a control person of the issuer is also a control person of another issuer that has made a securities offering in Texas within the previous 12-month period;
(B) a control person of the issuer is also a control person of another issuer that is concurrently conducting a securities offering in Texas; or
(C) the proceeds of the offering will be combined with the proceeds of a securities offering by another issuer as part of a single plan of financing.
The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.
Filed with the Office of the Secretary of State on November 27, 2017.
TRD-201704808
Travis Iles
Securities Commissioner
State Securities Board
Earliest possible date of adoption: January 14, 2018
For further information, please call: (512) 305-8303