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| [ Introduced ] | [ Engrossed ] | [ House Amendment 001 ] |
91_HB3944enr HB3944 Enrolled LRB9111259STsb 1 AN ACT to amend the various Acts concerning business 2 organizations. 3 Be it enacted by the People of the State of Illinois, 4 represented in the General Assembly: 5 Section 5. The Illinois Securities Law of 1953 is 6 amended by changing Sections 2.5a, 2.9, 2.12b, 3, 4, 8, 11, 7 and 12 as follows: 8 (815 ILCS 5/2.5a) (from Ch. 121 1/2, par. 137.2-5a) 9 Sec. 2.5a. Offer. "Offer" shall include every offer to 10 sell or otherwise dispose of, or solicitation of an offer to 11 purchase, whether orally or by means of publication, 12 including but not limited to printed and electronic media, a 13 security or interest in a security for value; provided that 14 the term "offer" shall not include preliminary negotiations 15 or agreements between an issuer and any underwriter or among 16 underwriters who are or are to be in privity of contract with 17 an issuer, or the circulation or publication of an 18 identifying statement or circular or preliminary prospectus, 19 as defined by rules or regulations of the Secretary of State. 20 (Source: P.A. 89-209, eff. 1-1-96.) 21 (815 ILCS 5/2.9) (from Ch. 121 1/2, par. 137.2-9) 22 Sec. 2.9. "Salesperson" means an individual, other than 23 an issuer or a dealer, employed or appointed or authorized by 24 a dealer, issuer or controlling person to offer, purchase or 25 sell securities in this State. The partners or officers of a 26 dealer or issuer shall not be deemed to be salespersons 27 within the meaning of this definition if they are not or have 28 not been regularly engaged in securities offering, purchasing 29 or selling activities other than transactions for their own 30 respective accounts. No individual shall be deemed to be a HB3944 Enrolled -2- LRB9111259STsb 1 salesperson solely by reason of effecting transactions in a 2 covered security to qualified purchasers as described in 3 Section 18(b)(3) of the Federal 1933 Act, effecting 4 transactions in a covered security as described in Section 5 18(b)(4)(D) of the Federal 1933 Act, or engaging in offers or 6 effecting sales of securities to employees of the issuer of 7 such securities or to employees of the parent or any majority 8wholly-owned subsidiary of such issuer, provided that such 9 individual is an employee of such issuer, parent or 10 subsidiary who has not been employed primarily to make such 11 offers or sales and who receives no special compensation, 12 directly or indirectly, for or on account of any such offer 13 or sale. "Salesperson" also means a limited Canadian 14 salesperson. "Salesperson" also means an individual who, in 15 this State, communicates with members of the public to 16 identify prospective customers for the purpose of soliciting 17 the purchase or sale of securities or related services. 18 (Source: P.A. 90-70, eff. 7-8-97; 90-667, eff. 7-30-98.) 19 (815 ILCS 5/2.12b) (from Ch. 121 1/2, par. 137.2-12b) 20 Sec. 2.12b. Investment adviser representative. 21 "Investment adviser representative" means, with respect to an 22 investment adviser who is required to register under this 23 Act, any partner, officer, director of (or a person occupying 24 a similar status or performing similar functions), or other 25 natural person employed by or associated with an investment 26 adviser, except clerical or ministerial personnel, who in 27 this State: 28 (1) makes any recommendations or otherwise renders 29 advice regarding securities; 30 (2) manages accounts or portfolios of clients; 31 (3) determines what recommendation or advice regarding 32 securities should be given;or33 (4) supervises any employee who performs any of the HB3944 Enrolled -3- LRB9111259STsb 1 foregoing; or.2 (5) solicits, refers, offers, or negotiates for the sale 3 of, or sells, investment advisory services. 4 With respect to a federal covered investment adviser, 5 "investment adviser representative" means any person who is 6 an investment adviser representative with a place of business 7 in this State as such terms are defined by the Securities and 8 Exchange Commission under Section 203A of the Federal 1940 9 Investment Advisers Act. 10 (Source: P.A. 90-70, eff. 7-8-97; 90-667, eff. 7-30-98.) 11 (815 ILCS 5/3) (from Ch. 121 1/2, par. 137.3) 12 Sec. 3. The provisions of Sections 2a, 5, 6 and 7 of 13 this Act shall not apply to any of the following securities: 14 A. Any security (including a revenue obligation) issued 15 or guaranteed by the United States, any state, any political 16 subdivision of a state, or any agency or corporation or other 17 instrumentality of any one or more of the foregoing, or any 18 certificate of deposit for any such security. 19 B. Any security issued or guaranteed by Canada, any 20 Canadian province, any political subdivision of any such 21 province, any agency or corporation or other instrumentality 22 of one or more of the foregoing, or any other foreign 23 government with which the United States then maintains 24 diplomatic relations, if the security is recognized as a 25 valid obligation by the issuer or guarantor. 26 C. (1) Any security issued by and representing an 27 interest in or a debt of, or guaranteed by, any bank or 28 savings bank, bank holding company, or credit union organized 29 under the laws of the United States, or any bank, savings 30 bank, savings institution or trust company organized and 31 supervised under the laws of any state, or any interest or 32 participation in any common trust fund or similar fund 33 maintained by any such bank, savings bank, savings HB3944 Enrolled -4- LRB9111259STsb 1 institution or trust company exclusively for the collective 2 investment and reinvestment of assets contributed thereto by 3 such bank, savings bank, savings institution or trust company 4 or any affiliate thereof, in its capacity as fiduciary, 5 trustee, executor, administrator or guardian. 6 (2) Any security issued or guaranteed to both principal 7 and interest by an international bank of which the United 8 States is a member. 9 D. (1) Any security issued by and representing an 10 interest in or a debt of, or guaranteed by, any federal 11 savings and loan association, or any savings and loan 12 association or building and loan association organized and 13 supervised under the laws of any state. 14 (2) Any security issued or guaranteed by any federal 15 credit union or any credit union, industrial loan 16 association, or similar organization organized and supervised 17 under the laws of any state. 18 E. Any security issued or guaranteed by any railroad, 19 other common carrier, public utility or holding company where 20 such issuer or guarantor is subject to the jurisdiction of 21 the Interstate Commerce Commission or successor entity, or is 22 a registered holding company under the Public Utility Holding 23 Company Act of 1935 or a subsidiary of such a company within 24 the meaning of that Act, or is regulated in respect of its 25 rates and charges by a governmental authority of the United 26 States or any state, or is regulated in respect of the 27 issuance or guarantee of the security by a governmental 28 authority of the United States, any state, Canada, or any 29 Canadian province. 30 F. Equipment trust certificates in respect of equipment 31 leased or conditionally sold to a person, if securities 32 issued by such person would be exempt under subsection E of 33 this Section. 34 G. Any security which at the time of sale is listed or HB3944 Enrolled -5- LRB9111259STsb 1 approved for listing upon notice of issuance on the New York 2 Stock Exchange, Inc., the American Stock Exchange, Inc., the 3 Pacific Stock Exchange, Inc., the Chicago Stock Exchange, 4 Inc., the Chicago Board of Trade, the Philadelphia Stock 5 Exchange, Inc., the Chicago Board Options Exchange, 6 Incorporated, the National Market System of the Nasdaq Stock 7 Market, or any other exchange, automated quotation system or 8 board of trade which the Secretary of State, by rule or 9 regulation, deems to have substantially equivalent standards 10 for listing or designation as required by any such exchange, 11 automated quotation system or board of trade; and securities 12 senior or of substantially equal rank, both as to dividends 13 or interest and upon liquidation, to securities so listed or 14 designated; and warrants and rights to purchase any of the 15 foregoing; provided, however, that this subsection G shall 16 not apply to investment fund shares or securities of like 17 character, which are being continually offered at a price or 18 prices determined in accordance with a prescribed formula. 19 The Secretary of State may, after notice and opportunity 20 for hearing, revoke the exemption afforded by this 21 subparagraph with respect to any securities by issuing an 22 order if the Secretary of State finds that the further sale 23 of the securities in this State would work or tend to work a 24 fraud on purchasers of the securities. 25 H. Any security issued by a person organized and 26 operated not for pecuniary profit and exclusively for 27 religious, educational, benevolent, fraternal, agricultural, 28 charitable, athletic, professional, trade, social or 29 reformatory purposes, or as a chamber of commerce or local 30 industrial development corporation, or for more than one of 31 said purposes and no part of the net earnings of which inures 32 to the benefit of any private stockholder or member. 33 I. Instruments evidencing indebtedness under an 34 agreement for the acquisition of property under contract of HB3944 Enrolled -6- LRB9111259STsb 1 conditional sale. 2 J. A note secured by a first mortgage upon tangible 3 personal or real property when such mortgage is made, 4 assigned, sold, transferred and delivered with such note or 5 other written obligation secured by such mortgage, either to 6 or for the benefit of the purchaser or lender; or bonds or 7 notes not more than 10 in number secured by a first mortgage 8 upon the title in fee simple to real property if the 9 aggregate principal amount secured by such mortgage does not 10 exceed $500,000 and also does not exceed 75% of the fair 11 market value of such real property. 12 K. A note or notes not more than 10 in number secured by 13 a junior mortgage lien if the aggregate principal amount of 14 the indebtedness represented thereby does not exceed 50% of 15 the amount of the then outstanding prior lien indebtedness 16 and provided that the total amount of the indebtedness 17 (including the indebtedness represented by the subject junior 18 mortgage note or notes) shall not exceed 90% of the fair 19 market value of the property securing such indebtedness; and 20 provided further that each such note or notes shall bear 21 across the face thereof the following legend in letters at 22 least as large as 12 point type: "THIS NOTE IS SECURED BY A 23 JUNIOR MORTGAGE". 24 L. Any negotiable promissory note or draft, bill of 25 exchange or bankers' acceptance which arises out of a current 26 transaction or the proceeds of which have been or are to be 27 used for current transactions, and which evidences an 28 obligation to pay cash within 9 months of the date of 29 issuance exclusive of days of grace, or any renewal of such 30 note, draft, bill or acceptance which is likewise limited, or 31 any guarantee of such note, draft, bill or acceptance or of 32 any such renewal, provided that the note, draft, bill, or 33 acceptance is a negotiable security eligible for discounting 34 by banks that are members of the Federal Reserve System. Any HB3944 Enrolled -7- LRB9111259STsb 1 instrument exempted under this subsection from the 2 requirement of Sections 5, 6, and 7 of this Act shall bear 3 across the face thereof the following legend in letters at 4 least as large as 12 point type: "THIS INSTRUMENT IS NEITHER 5 GUARANTEED, NOR IS THE ISSUANCE THEREOF REGULATED BY ANY 6 AGENCY OR DEPARTMENT OF THE STATE OF ILLINOIS OR THE UNITED 7 STATES.". However, the foregoing legend shall not be 8 required with respect to any such instrument: 9 (i) sold to a person described in subsection C or H 10 of Section 4 of this Act; 11 (ii) sold to a "Qualified Institutional Buyer" as 12 that term is defined in Rule 144a adopted under the 13 Securities Act of 1933; 14 (iii) where the minimum initial subscription for 15 the purchase of such instrument is $100,000 or more; or 16 (iv) issued by an issuer that has any class of 17 securities registered under Section 12 of the Securities 18 Exchange Act of 1934 or has any outstanding class of 19 indebtedness rated in one of the 3 highest categories by 20 a rating agency designated by the Department; 21 M. Any security issued by and representing an interest 22 in or a debt of, or guaranteed by, any insurance company 23 organized under the laws of any state. 24 N. Any security issued pursuant to (i) a written 25 compensatory benefit plan (including without limitation, any 26 purchase, savings, option, bonus, stock appreciation, profit 27 sharing, thrift, incentive, pension, or similar plan) and 28 interests in such plans established by one or more of the 29 issuers thereof or its parents or majority-owned subsidiaries 30 for the participation of their employees, directors, general 31 partners, trustees (where the issuer is a business trust), 32 officers, or consultants or advisers of such issuers or its 33 parents or majority-owned subsidiaries, provided that bona 34 fide services are rendered by consultants or advisers and HB3944 Enrolled -8- LRB9111259STsb 1 those services are not in connection with the offer and sale 2 of securities in a capital-raising transaction or (ii) a 3 written contract relating to the compensation of any such 4 person. 5 O. Any option, put, call, spread or straddle issued by a 6 clearing agency registered as such under the Federal 1934 7 Act, if the security, currency, commodity, or other interest 8 underlying the option, put, call, spread or straddle is not 9 required to be registered under Section 5. 10 P. Any security which meets all of the following 11 conditions: 12 (1) If the issuer is not organized under the laws 13 of the United States or a state, it has appointed a duly 14 authorized agent in the United States for service of 15 process and has set forth the name and address of the 16 agent in its prospectus. 17 (2) A class of the issuer's securities is required 18 to be and is registered under Section 12 of the Federal 19 1934 Act, and has been so registered for the three years 20 immediately preceding the offering date. 21 (3) Neither the issuer nor a significant subsidiary 22 has had a material default during the last seven years, 23 or for the period of the issuer's existence if less than 24 seven years, in the payment of (i) principal, interest, 25 dividend, or sinking fund installment on preferred stock 26 or indebtedness for borrowed money, or (ii) rentals under 27 leases with terms of three years or more. 28 (4) The issuer has had consolidated net income, 29 before extraordinary items and the cumulative effect of 30 accounting changes, of at least $1,000,000 in four of its 31 last five fiscal years including its last fiscal year; 32 and if the offering is of interest bearing securities, 33 has had for its last fiscal year, net income, before 34 deduction for income taxes and depreciation, of at least HB3944 Enrolled -9- LRB9111259STsb 1 1-1/2 times the issuer's annual interest expense, giving 2 effect to the proposed offering and the intended use of 3 the proceeds. For the purposes of this clause "last 4 fiscal year" means the most recent year for which audited 5 financial statements are available, provided that such 6 statements cover a fiscal period ended not more than 15 7 months from the commencement of the offering. 8 (5) If the offering is of stock or shares other 9 than preferred stock or shares, the securities have 10 voting rights and the rights include (i) the right to 11 have at least as many votes per share, and (ii) the right 12 to vote on at least as many general corporate decisions, 13 as each of the issuer's outstanding classes of stock or 14 shares, except as otherwise required by law. 15 (6) If the offering is of stock or shares, other 16 than preferred stock or shares, the securities are owned 17 beneficially or of record, on any date within six months 18 prior to the commencement of the offering, by at least 19 1,200 persons, and on that date there are at least 20 750,000 such shares outstanding with an aggregate market 21 value, based on the average bid price for that day, of at 22 least $3,750,000. In connection with the determination 23 of the number of persons who are beneficial owners of the 24 stock or shares of an issuer, the issuer or dealer may 25 rely in good faith for the purposes of this clause upon 26 written information furnished by the record owners. 27 (7) The issuer meets the conditions specified in 28 paragraphs (2), (3) and (4) of this subsection P if 29 either the issuer or the issuer and the issuer's 30 predecessor, taken together, meet such conditions and if: 31 (a) the succession was primarily for the purpose of 32 changing the state of incorporation of the predecessor or 33 forming a holding company and the assets and liabilities 34 of the successor at the time of the succession were HB3944 Enrolled -10- LRB9111259STsb 1 substantially the same as those of the predecessor; or 2 (b) all predecessors met such conditions at the time of 3 succession and the issuer has continued to do so since 4 the succession. 5 Q. Any security appearing on the List of OTC Margin 6 Stocks published by the Board of Governors of the Federal 7 Reserve System or any security incorporated by reference to 8 the List of OTC Margin Stocks by the Board of Governors of 9 the Federal Reserve System; any other securities of the same 10 issuer which are of senior or substantially equal rank; any 11 securities called for by subscription rights or warrants so 12 listed or approved; or any warrants or rights to purchase or 13 subscribe to any of the foregoing. 14 R. Any security issued by a bona fide agricultural 15 cooperative operating in this State that is organized under 16 the laws of this State or as a foreign cooperative 17 association organized under the law of another state that has 18 been duly qualified to transact business in this State. 19 (Source: P.A. 89-209, eff. 1-1-96; 90-70, eff. 7-8-97.) 20 (815 ILCS 5/4) (from Ch. 121 1/2, par. 137.4) 21 Sec. 4. Exempt transactions. The provisions of Sections 22 2a, 5, 6 and 7 of this Act shall not apply to any of the 23 following transactions, except where otherwise specified in 24 this Section 4: 25 A. Any offer or sale, whether through a dealer or 26 otherwise, of securities by a person who is not an issuer, 27 underwriter, dealer or controlling person in respect of such 28 securities, and who, being the bona fide owner of such 29 securities, disposes thereof for his or her own account; 30 provided, that such offer or sale is not made directly or 31 indirectly for the benefit of the issuer or of an underwriter 32 or controlling person. 33 B. Any offer, sale, issuance or exchange of securities HB3944 Enrolled -11- LRB9111259STsb 1 of the issuer to or with security holders of the issuer 2 except to or with persons who are security holders solely by 3 reason of holding transferable warrants, transferable 4 options, or similar transferable rights of the issuer, if no 5 commission or other remuneration is paid or given directly or 6 indirectly for or on account of the procuring or soliciting 7 of such sale or exchange (other than a fee paid to 8 underwriters based on their undertaking to purchase any 9 securities not purchased by security holders in connection 10 with such sale or exchange). 11 C. Any offer, sale or issuance of securities to any 12 corporation, bank, savings bank, savings institution, savings 13 and loan association, trust company, insurance company, 14 building and loan association, or dealer; to a pension fund, 15 pension trust, or employees' profit sharing trust, other 16 financial institution or institutional investor, any 17 government or political subdivision or instrumentality 18 thereof, whether the purchaser is acting for itself or in 19 some fiduciary capacity; to any partnership or other 20 association engaged as a substantial part of its business or 21 operations in purchasing or holding securities; to any trust 22 in respect of which a bank or trust company is trustee or 23 co-trustee; to any entity in which at least 90% of the equity 24 is owned by persons described under subsection C, H, or S of 25 this Section 4; to any employee benefit plan within the 26 meaning of Title I of the Federal ERISA Act if (i) the 27 investment decision is made by a plan fiduciary as defined in 28 Section 3(21) of the Federal ERISA Act and such plan 29 fiduciary is either a bank, savings and loan association, 30 insurance company, registered investment adviser or an 31 investment adviser registered under the Federal 1940 32 Investment Advisers Act, or (ii) the plan has total assets in 33 excess of $5,000,000, or (iii) in the case of a self-directed 34 plan, investment decisions are made solely by persons that HB3944 Enrolled -12- LRB9111259STsb 1 are described under subsection C, D, H or S of this Section 2 4; to any plan established and maintained by, and for the 3 benefit of the employees of, any state or political 4 subdivision or agency or instrumentality thereof if such plan 5 has total assets in excess of $5,000,000; or to any 6 organization described in Section 501(c)(3) of the Internal 7 Revenue Code of 1986, any Massachusetts or similar business 8 trust, or any partnership, if such organization, trust, or 9 partnership has total assets in excess of $5,000,000. 10 D. The Secretary of State is granted authority to create 11 by rule or regulation a limited offering transactional 12 exemption that furthers the objectives of compatibility with 13 federal exemptions and uniformity among the states. The 14 Secretary of State shall prescribe by rule or regulation the 15 amount of the fee for filing any report required under this 16 subsection, but the fee shall not be less than the minimum 17 amount nor more than the maximum amount established under 18 Section 11a of this Act and shall not be returnable in any 19 event. 20 E. Any offer or sale of securities by an executor, 21 administrator, guardian, receiver or trustee in insolvency or 22 bankruptcy, or at any judicial sale, or at a public sale by 23 auction held at an advertised time and place, or the offer or 24 sale of securities in good faith and not for the purpose of 25 avoiding the provisions of this Act by a pledgee of 26 securities pledged for a bona fide debt. 27 F. Any offer or sale by a registered dealer, either as 28 principal or agent, of any securities (except face amount 29 certificate contracts and investment fund shares) at a price 30 reasonably related to the current market price of such 31 securities, provided: 32 (1) (a) the securities are issued and outstanding; 33 (b) the issuer is required to file reports 34 pursuant to Section 13 or Section 15(d) of the HB3944 Enrolled -13- LRB9111259STsb 1 Federal 1934 Act and has been subject to such 2 requirements during the 90 day period immediately 3 preceding the date of the offer or sale, or is an 4 issuer of a security covered by Section 12(g)(2)(B) 5 or (G) of the Federal 1934 Act; 6 (c) the dealer has a reasonable basis for 7 believing that the issuer is current in filing the 8 reports required to be filed at regular intervals 9 pursuant to the provisions of Section 13 or Section 10 15(d), as the case may be, of the Federal 1934 Act, 11 or in the case of insurance companies exempted from 12 Section 12(g) of the Federal 1934 Act by 13 subparagraph 12(g)(2)(G) thereof, the annual 14 statement referred to in Section 12(g)(2)(G)(i) of 15 the Federal 1934 Act; and 16 (d) the dealer has in its records, and makes 17 reasonably available upon request to any person 18 expressing an interest in a proposed transaction in 19 the securities, the issuer's most recent annual 20 report filed pursuant to Section 13 or 15(d), as the 21 case may be, of the Federal 1934 Act or the annual 22 statement in the case of an insurance company 23 exempted from Section 12(g) of the Federal 1934 Act 24 by subparagraph 12(g)(2)(G) thereof, together with 25 any other reports required to be filed at regular 26 intervals under the Federal 1934 Act by the issuer 27 after such annual report or annual statement; 28 provided that the making available of such reports 29 pursuant to this subparagraph, unless otherwise 30 represented, shall not constitute a representation 31 by the dealer that the information is true and 32 correct, but shall constitute a representation by 33 the dealer that the information is reasonably 34 current; or HB3944 Enrolled -14- LRB9111259STsb 1 (2) (a) prior to any offer or sale, an application 2 for the authorization thereof and a report as set 3 forth under sub-paragraph (d) of this paragraph (2) 4 has been filed by any registered dealer with and 5 approved by the Secretary of State pursuant to such 6 rules and regulations as the Secretary of State may 7 prescribe; 8 (b) the Secretary of State shall have the 9 power by order to refuse to approve any application 10 or report filed pursuant to this paragraph (2) if 11 (i) the application or report does not 12 comply with the provisions of this paragraph 13 (2), or 14 (ii) the offer or sale of such securities 15 would work or tend to work a fraud or deceit, 16 or 17 (iii) the issuer or the applicant has 18 violated any of the provisions of this Act; 19 (c) each application and report filed pursuant 20 to this paragraph (2) shall be accompanied by a 21 filing fee and an examination fee in the amount 22 established pursuant to Section 11a of this Act, 23 which shall not be returnable in any event; 24 (d) there shall be submitted to the Secretary 25 of State no later than 120 days following the end of 26 the issuer's fiscal year, each year during the 27 period of the authorization, one copy of a report 28 which shall contain a balance sheet and income 29 statement prepared as of the issuer's most recent 30 fiscal year end certified by an independent 31 certified public accountant, together with such 32 current information concerning the securities and 33 the issuer thereof as the Secretary of State may 34 prescribe by rule or regulation or order; HB3944 Enrolled -15- LRB9111259STsb 1 (e) prior to any offer or sale of securities 2 under the provisions of this paragraph (2), each 3 registered dealer participating in the offer or sale 4 of such securities shall provide upon request of 5 prospective purchasers of such securities a copy of 6 the most recent report required under the provisions 7 of sub-paragraph (d) of this paragraph (2); 8 (f) approval of an application filed pursuant 9 to this paragraph (2) of subsection F shall expire 5 10 years after the date of the granting of the 11 approval, unless said approval is sooner terminated 12 by (1) suspension or revocation by the Secretary of 13 State in the same manner as is provided for in 14 subsections E, F and G of Section 11 of this Act, or 15 (2) the applicant filing with the Secretary of State 16 an affidavit to the effect that (i) the subject 17 securities have become exempt under Section 3 of 18 this Act or (ii) the applicant no longer is capable 19 of acting as the applicant and stating the reasons 20 therefor or (iii) the applicant no longer desires to 21 act as the applicant. In the event of the filing of 22 an affidavit under either preceding sub-division 23 (ii) or (iii) the Secretary of State may authorize a 24 substitution of applicant upon the new applicant 25 executing the application as originally filed. 26 However, the aforementioned substituted execution 27 shall have no effect upon the previously determined 28 date of expiration of approval of the application. 29 Notwithstanding the provisions of this subparagraph 30 (f), approvals granted under this paragraph (2) of 31 subsection F prior to the effective date of this Act 32 shall be governed by the provisions of this Act in 33 effect on such date of approval; and 34 (g) no person shall be considered to have HB3944 Enrolled -16- LRB9111259STsb 1 violated Section 5 of this Act by reason of any 2 offer or sale effected in reliance upon an approval 3 granted under this paragraph (2) after a termination 4 thereof under the foregoing subparagraph (f) if 5 official notice of such termination has not been 6 circulated generally to dealers by the Secretary of 7 State and if such person sustains the burden of 8 proof that he or she did not know, and in the 9 exercise of reasonable care, could not have known, 10 of the termination; or 11 (3) the securities, or securities of the same 12 class, are the subject of an existing registration under 13 Section 5 of this Act. 14 The exemption provided in this subsection F shall apply 15 only if the offer or sale is made in good faith and not for 16 the purpose of avoiding any of the provisions of this Act, 17 and only if the offer or sale is not made for the direct or 18 indirect benefit of the issuer of the securities, or the 19 controlling person in respect of such issuer. 20 G. (1) Any offer, sale or issuance of a security, 21 whether to residents or to non-residents of this State, 22 where: 23 (a) all sales of such security to residents of 24 this State (including the most recent such sale) 25 within the immediately preceding 12-month period 26 have been made to not more than 35 persons or have 27 involved an aggregate sales price of not more than 28 $1,000,000; 29 (b) such security is not offered or sold by 30 means of any general advertising or general 31 solicitation in this State; and 32 (c) no commission, discount, or other 33 remuneration exceeding 20% of the sale price of such 34 security, if sold to a resident of this State, is HB3944 Enrolled -17- LRB9111259STsb 1 paid or given directly or indirectly for or on 2 account of such sales. 3 (2) In computing the number of resident purchasers 4 or the aggregate sales price under paragraph (1) (a) 5 above, there shall be excluded any purchaser or dollar 6 amount of sales price, as the case may be, with respect 7 to any security which at the time of its sale was exempt 8 under Section 3 or was registered under Section 5, 6 or 7 9 or was sold in a transaction exempt under other 10 subsections of this Section 4. 11 (3) A prospectus or preliminary prospectus with 12 respect to a security for which a registration statement 13 is pending or effective under the Federal 1933 Act shall 14 not be deemed to constitute general advertising or 15 general solicitation in this State as such terms are used 16 in paragraph (1) (b) above, provided that such prospectus 17 or preliminary prospectus has not been sent or otherwise 18 delivered to more than 150 residents of this State. 19 (4) The Secretary of State shall by rule or 20 regulation require the filing of a report or reports of 21 sales made in reliance upon the exemption provided by 22 this subsection G and prescribe the form of such report 23 and the time within which such report shall be filed. 24 Such report shall set forth the name and address of the 25 issuer and of the controlling person, if the sale was for 26 the direct or indirect benefit of such person, and any 27 other information deemed necessary by the Secretary of 28 State to enforce compliance with this subsection G. The 29 Secretary of State shall prescribe by rule or regulation 30 the amount of the fee for filing any such report, 31 established pursuant to Section 11a of this Act, which 32 shall not be returnable in any event. The Secretary of 33 State may impose, in such cases as he or she may deem 34 appropriate, a penalty for failure to file any such HB3944 Enrolled -18- LRB9111259STsb 1 report in a timely manner, but no such penalty shall 2 exceed an amount equal to five times the filing fee. The 3 contents of any such report or portion thereof may be 4 deemed confidential by the Secretary of State by rule or 5 order and if so deemed shall not be disclosed to the 6 public except by order of court or in court proceedings. 7 The failure to file any such report shall not affect the 8 availability of such exemption, but such failure to file 9 any such report shall constitute a violation of 10 subsection D of Section 12 of this Act, subject to the 11 penalties enumerated in Section 14 of this Act. The 12 civil remedies provided for in subsection A of Section 13 13 of this Act and the civil remedies of rescission and 14 appointment of a receiver, conservator, ancillary 15 receiver or ancillary conservator provided for in 16 subsection F of Section 13 of this Act shall not be 17 available against any person by reason of the failure to 18 file any such report or on account of the contents of any 19 such report. 20 H. Any offer, sale or issuance of a security to (1) any 21 natural person who has, or is reasonably believed by the 22 person relying upon this subsection H to have, a net worth or 23 joint net worth with that person's spouse, at the time of the 24 offer, sale or issuance, in excess of $1,000,000 excluding 25 the value of a principal residence, or (2) any natural person 26 who had, or is reasonably believed by the person relying upon 27 this subsection H to have had, an income or joint income with 28 that person's spouse, in excess of $200,000 in each of the 29 two most recent years and who reasonably expects, or is 30 reasonably expected to have, an income in excess of $200,000 31 in the current year, or (3) any person that is not a natural 32 person and in which at least 90% of the equity interest is 33 owned by persons who meet either of the tests set forth in 34 clauses (1) or (2) of this subsection H; provided that such HB3944 Enrolled -19- LRB9111259STsb 1 security is not offered or sold by means of any general 2 advertising or general solicitation in this State. 3 I. Any offer, sale or issuance of securities to or for 4 the benefit of security holders of any person incident to a 5 vote by such security holders pursuant to such person's 6 organizational document or any applicable statute of the 7 jurisdiction of such person's organization, on a merger, 8 consolidation, reclassification of securities, or sale or 9 transfer of assets in consideration of or exchange for 10 securities of the same or another person. 11 J. Any offer, sale or issuance of securities in exchange 12 for one or more outstanding securities, claims or property 13 interests, or partly in such exchange and partly for cash, 14 where such offer, sale or issuance is incident to a 15 reorganization, recapitalization, readjustment, composition 16 or settlement of a claim, as approved by a court of competent 17 jurisdiction of the United States, or any state. 18 K. Any offer, sale or issuance of securities for 19 patronage, or as patronage refunds, or in connection with 20 marketing agreements by cooperative associations organized 21 exclusively for agricultural, producer, marketing, 22 purchasing, or consumer purposes; and the sale of 23 subscriptions for or shares of stock of cooperative 24 associations organized exclusively for agricultural, 25 producer, marketing, purchasing, or consumer purposes, if no 26 commission or other remuneration is paid or given directly or 27 indirectly for or on account of such subscription, sale or 28 resale, and if any person does not own beneficially more than 29 5% of the aggregate amount of issued and outstanding capital 30 stock of such cooperative association. 31 L. Offers for sale or solicitations of offers to buy 32 (but not the acceptance thereof), of securities which are the 33 subject of a pending registration statement filed under the 34 Federal 1933 Act and which are the subject of a pending HB3944 Enrolled -20- LRB9111259STsb 1 application for registration under this Act. 2 M. Any offer or sale of preorganization subscriptions 3 for any securities prior to the incorporation, organization 4 or formation of any issuer under the laws of the United 5 States, or any state, or the issuance by such issuer, after 6 its incorporation, organization or formation, of securities 7 pursuant to such preorganization subscriptions, provided the 8 number of subscribers does not exceed 25 and either (1) no 9 commission or other remuneration is paid or given directly or 10 indirectly for or on account of such sale or sales or 11 issuance, or (2) if any commission or other remuneration is 12 paid or given directly or indirectly for or on account of 13 such sale or sales or issuance, the securities are not 14 offered or sold by any means of general advertising or 15 general solicitation in this State. 16 N. The execution of orders for purchase of securities by 17 a registered salesperson and dealer, provided such persons 18 act as agent for the purchaser, have made no solicitation of 19 the order to purchase the securities, have no direct interest 20 in the sale or distribution of the securities ordered, 21 receive no commission, profit, or other compensation other 22 than the commissions involved in the purchase and sale of the 23 securities and deliver to the purchaser written confirmation 24 of the order which clearly identifies the commissions paid to 25 the registered dealer. 26 O. Any offer, sale or issuance of securities, other than 27 fractional undivided interests in an oil, gas or other 28 mineral lease, right or royalty, for the direct or indirect 29 benefit of the issuer thereof, or of a controlling person, 30 whether through a dealer (acting either as principal or 31 agent) or otherwise, if the securities sold, immediately 32 following the sale or sales, together with securities already 33 owned by the purchaser, would constitute 50% or more of the 34 equity interest of any one issuer, provided that the number HB3944 Enrolled -21- LRB9111259STsb 1 of purchasers is not more than 5 and provided further that no 2 commission, discount or other remuneration exceeding 15% of 3 the aggregate sale price of the securities is paid or given 4 directly or indirectly for or on account of the sale or 5 sales. 6 P. Any offer, sale or issuance of securities (except 7 face amount certificate contracts and investment fund shares) 8 issued by and representing an interest in an issuer which is 9 a business corporation incorporated under the laws of this 10 State, the purposes of which are to provide capital and 11 supervision solely for the redevelopment of blighted urban 12 areas located in a municipality in this State and whose 13 assets are located entirely within that municipality, 14 provided: (1) no commission, discount or other remuneration 15 is paid or given directly or indirectly for or on account of 16 the sale or sales of such securities; (2) the aggregate 17 amount of any securities of the issuer owned of record or 18 beneficially by any one person will not exceed the lesser of 19 $5,000 or 4% of the equity capitalization of the issuer; (3) 20 the officers and directors of the corporation have been bona 21 fide residents of the municipality not less than 3 years 22 immediately preceding the effectiveness of the offering sheet 23 for the securities under this subsection P; and (4) the 24 issuer files with the Secretary of State an offering sheet 25 descriptive of the securities setting forth: 26 (a) the name and address of the issuer; 27 (b) the title and total amount of securities to be 28 offered; 29 (c) the price at which the securities are to be 30 offered; and 31 (d) such additional information as the Secretary of 32 State may prescribe by rule and regulation. 33 The Secretary of State shall within a reasonable time 34 examine the offering sheet so filed and, unless the Secretary HB3944 Enrolled -22- LRB9111259STsb 1 of State shall make a determination that the offering sheet 2 so filed does not conform to the requirements of this 3 subsection P, shall declare the offering sheet to be 4 effective, which offering sheet shall continue effective for 5 a period of 12 months from the date it becomes effective. 6 The fee for examining the offering sheet shall be as 7 established pursuant to Section 11a of this Act, and shall 8 not be returnable in any event. The Secretary of State shall 9 by rule or regulation require the filing of a report or 10 reports of sales made to residents of this State in reliance 11 upon the exemption provided by this subsection P and 12 prescribe the form of such report and the time within which 13 such report shall be filed. The Secretary of State shall 14 prescribe by rule or regulation the amount of the fee for 15 filing any such report, but such fee shall not be less than 16 the minimum amount nor more than the maximum amount 17 established pursuant to Section 11a of this Act, and shall 18 not be returnable in any event. The Secretary of State may 19 impose, in such cases as he or she may deem appropriate, a 20 penalty for failure to file any such report in a timely 21 manner, but no such penalty shall exceed an amount equal to 22 five times the filing fee. The contents of any such report 23 shall be deemed confidential and shall not be disclosed to 24 the public except by order of court or in court proceedings. 25 The failure to file any such report shall not affect the 26 availability of such exemption, but such failure to file any 27 such report shall constitute a violation of subsection D of 28 Section 12 of this Act, subject to the penalties enumerated 29 in Section 14 of this Act. The civil remedies provided for 30 in subsection A of Section 13 of this Act and the civil 31 remedies of rescission and appointment of a receiver, 32 conservator, ancillary receiver or ancillary conservator 33 provided for in subsection F of Section 13 of this Act shall 34 not be available against any person by reason of the failure HB3944 Enrolled -23- LRB9111259STsb 1 to file any such report or on account of the contents of any 2 such report. 3 Q. Any isolated transaction, whether effected by a 4 dealer or not. 5 R. Any offer, sale or issuance of a security to any 6 person who purchases at least $150,000 of the securities 7 being offered, where the purchaser's total purchase price 8 does not, or it is reasonably believed by the person relying 9 upon this subsection R that said purchase price does not, 10 exceed 20 percent of the purchaser's net worth at the time of 11 sale, or if a natural person a joint net worth with that 12 person's spouse, for one or any combination of the following: 13 (i) cash, (ii) securities for which market quotations are 14 readily available, (iii) an unconditional obligation to pay 15 cash or securities for which quotations are readily 16 available, which obligation is to be discharged within five 17 years of the sale of the securities to the purchaser, or (iv) 18 the cancellation of any indebtedness owed by the issuer to 19 the purchaser; provided that such security is not offered or 20 sold by means of any general advertising or general 21 solicitation in this State. 22 S. Any offer, sale or issuance of a security to any 23 person who is, or who is reasonably believed by the person 24 relying upon this subsection S to be, a director, executive 25 officer, or general partner of the issuer of the securities 26 being offered or sold, or any director, executive officer, or 27 general partner of a general partner of that issuer. For 28 purposes of this subsection S, "executive officer" shall mean 29 the president, any vice president in charge of a principal 30 business unit, division or function (such as sales, 31 administration or finance), any other officer who performs a 32 policy making function, or any other person who performs 33 similar policy making functions for the issuer. Executive 34 officers of subsidiaries may be deemed executive officers of HB3944 Enrolled -24- LRB9111259STsb 1 the issuer if they perform such policy making functions for 2 the issuer. 3 A document being filed pursuant to this Section 4 shall 4 be deemed filed, and any fee paid pursuant to this Section 4 5 shall be deemed paid, upon the date of actual receipt thereof 6 by the Secretary of State. 7 (Source: P.A. 89-209, eff. 1-1-96; 89-626, eff. 8-9-96; 8 90-70, eff. 7-8-97.) 9 (815 ILCS 5/8) (from Ch. 121 1/2, par. 137.8) 10 Sec. 8. Registration of dealers, limited Canadian 11 dealers, salespersons, investment advisers, and investment 12 adviser representatives. 13 A. Except as otherwise provided in this subsection A, 14 every dealer, limited Canadian dealer, salesperson, 15 investment adviser, and investment adviser representative 16 shall be registered as such with the Secretary of State. No 17 dealer or salesperson need be registered as such when 18 offering or selling securities in transactions believed in 19 good faith to be exempted by subsection A, B, C, D, E, G, H, 20 I, J, K, M, O, P, Q, R or S of Section 4 of this Act, 21 provided that such dealer or salesperson is not regularly 22 engaged in the business of offering or selling securities in 23 reliance upon the exemption set forth in subsection G or M of 24 Section 4 of this Act. No dealer, issuer or controlling 25 person shall employ a salesperson unless such salesperson is 26 registered as such with the Secretary of State or is employed 27 for the purpose of offering or selling securities solely in 28 transactions believed in good faith to be exempted by 29 subsection A, B, C, D, E, G, H, I, J, K, L, M, O, P, Q, R or 30 S of Section 4 of this Act; provided that such salesperson 31 need not be registered when effecting transactions in this 32 State limited to those transactions described in Section 33 15(h)(2) of the Federal 1934 Act or engaging in the offer or HB3944 Enrolled -25- LRB9111259STsb 1 sale of securities in respect of which he or she has 2 beneficial ownership and is a controlling person. The 3 Secretary of State may, by rule, regulation or order and 4 subject to such terms, conditions as fees as may be 5 prescribed in such rule, regulation or order, exempt from the 6 registration requirements of this Section 8 any investment 7 adviser, if the Secretary of State shall find that such 8 registration is not necessary in the public interest by 9 reason of the small number of clients or otherwise limited 10 character of operation of such investment adviser. 11 B. An application for registration as a dealer or 12 limited Canadian dealer, executed, verified, or authenticated 13 by or on behalf of the applicant, shall be filed with the 14 Secretary of State, in such form as the Secretary of State 15 may by rule, regulation or order prescribe, setting forth or 16 accompanied by: 17 (1) The name and address of the applicant, the 18 location of its principal business office and all branch 19 offices, if any, and the date of its organization; 20 (2) A statement of any other Federal or state 21 licenses or registrations which have been granted the 22 applicant and whether any such licenses or registrations 23 have ever been refused, cancelled, suspended, revoked or 24 withdrawn; 25 (3) The assets and all liabilities, including 26 contingent liabilities of the applicant, as of a date not 27 more than 60 days prior to the filing of the application; 28 (4) (a) A brief description of any civil or 29 criminal proceeding of which fraud is an essential 30 element pending against the applicant and whether the 31 applicant has ever been convicted of a felony, or of any 32 misdemeanor of which fraud is an essential element; 33 (b) A list setting forth the name, residence and 34 business address and a 10 year occupational statement of HB3944 Enrolled -26- LRB9111259STsb 1 each principal of the applicant and a statement 2 describing briefly any civil or criminal proceedings of 3 which fraud is an essential element pending against any 4 such principal and the facts concerning any conviction of 5 any such principal of a felony, or of any misdemeanor of 6 which fraud is an essential element; 7 (5) If the applicant is a corporation: a list of 8 its officers and directors setting forth the residence 9 and business address of each; a 10-year occupational 10 statement of each such officer or director; and a 11 statement describing briefly any civil or criminal 12 proceedings of which fraud is an essential element 13 pending against each such officer or director and the 14 facts concerning any conviction of any officer or 15 director of a felony, or of any misdemeanor of which 16 fraud is an essential element; 17 (6) If the applicant is a sole proprietorship, a 18 partnership, limited liability company, an unincorporated 19 association or any similar form of business organization: 20 the name, residence and business address of the 21 proprietor or of each partner, member, officer, director, 22 trustee or manager; the limitations, if any, of the 23 liability of each such individual; a 10-year occupational 24 statement of each such individual; a statement describing 25 briefly any civil or criminal proceedings of which fraud 26 is an essential element pending against each such 27 individual and the facts concerning any conviction of any 28 such individual of a felony, or of any misdemeanor of 29 which fraud is an essential element; 30 (7) Such additional information as the Secretary of 31 State may by rule or regulation prescribe as necessary to 32 determine the applicant's financial responsibility, 33 business repute and qualification to act as a dealer. 34 (8) (a) No applicant shall be registered or HB3944 Enrolled -27- LRB9111259STsb 1 re-registered as a dealer or limited Canadian dealer 2 under this Section unless and until each principal of the 3 dealer has passed an examination conducted by the 4 Secretary of State or a self-regulatory organization of 5 securities dealers or similar person, which examination 6 has been designated by the Secretary of State by rule, 7 regulation or order to be satisfactory for purposes of 8 determining whether the applicant has sufficient 9 knowledge of the securities business and laws relating 10 thereto to act as a registered dealer. Any dealer who was 11 registered on September 30, 1963, and has continued to be 12 so registered; and any principal of any registered 13 dealer, who was acting in such capacity on and 14 continuously since September 30, 1963; and any individual 15 who has previously passed a securities dealer examination 16 administered by the Secretary of State or any examination 17 designated by the Secretary of State to be satisfactory 18 for purposes of determining whether the applicant has 19 sufficient knowledge of the securities business and laws 20 relating thereto to act as a registered dealer by rule, 21 regulation or order, shall not be required to pass an 22 examination in order to continue to act in such capacity. 23 The Secretary of State may by order waive the examination 24 requirement for any principal of an applicant for 25 registration under this subsection B who has had such 26 experience or education relating to the securities 27 business as may be determined by the Secretary of State 28 to be the equivalent of such examination. Any request 29 for such a waiver shall be filed with the Secretary of 30 State in such form as may be prescribed by rule or 31 regulation. 32 (b) Unless an applicant is a member of the body 33 corporate known as the Securities Investor Protection 34 Corporation established pursuant to the Act of Congress HB3944 Enrolled -28- LRB9111259STsb 1 of the United States known as the Securities Investor 2 Protection Act of 1970, as amended, a member of an 3 association of dealers registered as a national 4 securities association pursuant to Section 15A of the 5 Federal 1934 Act, or a member of a self-regulatory 6 organization or stock exchange in Canada which the 7 Secretary of State has designated by rule or order, an 8 applicant shall not be registered or re-registered unless 9 and until there is filed with the Secretary of State 10 evidence that such applicant has in effect insurance or 11 other equivalent protection for each client's cash or 12 securities held by such applicant, and an undertaking 13 that such applicant will continually maintain such 14 insurance or other protection during the period of 15 registration or re-registration. Such insurance or other 16 protection shall be in a form and amount reasonably 17 prescribed by the Secretary of State by rule or 18 regulation. 19 (9) The application for the registration of a 20 dealer or limited Canadian dealer shall be accompanied 21 by a filing fee and a fee for each branch office in this 22 State, in each case in the amount established pursuant to 23 Section 11a of this Act, which fees shall not be 24 returnable in any event. 25 (10) The Secretary of State shall notify the dealer 26 or limited Canadian dealer by written notice (which may 27 be by electronic or facsimile transmission) of the 28 effectiveness of the registration as a dealer in this 29 State. 30 (11) Any change which renders no longer accurate 31 any information contained in any application for 32 registration or re-registration of a dealer or limited 33 Canadian dealer shall be reported to the Secretary of 34 State within 10 business days after the occurrence of HB3944 Enrolled -29- LRB9111259STsb 1 such change; but in respect to assets and liabilities 2 only materially adverse changes need be reported. 3 C. Any registered dealer, limited Canadian dealer, 4 issuer, or controlling person desiring to register a 5 salesperson shall file an application with the Secretary of 6 State, in such form as the Secretary of State may by rule or 7 regulation prescribe, which the salesperson is required by 8 this Section to provide to the dealer, issuer, or controlling 9 person, executed, verified, or authenticated by the 10 salesperson setting forth or accompanied by: 11 (1) The name, residence and business address of the 12 salesperson; 13 (2) Whether any federal or State license or 14 registration as dealer, limited Canadian dealer, or 15 salesperson has ever been refused the salesperson or 16 cancelled, suspended, revoked, or withdrawn; 17 (3) The nature of employment with, and names and 18 addresses of, employers of the salesperson for the 10 19 years immediately preceding the date of application; 20 (4) A brief description of any civil or criminal 21 proceedings of which fraud is an essential element 22 pending against the salesperson, and whether the 23 salesperson has ever been convicted of a felony, or of 24 any misdemeanor of which fraud is an essential element; 25 (5) Such additional information as the Secretary of 26 State may by rule, regulation or order prescribe as 27 necessary to determine the salesperson's business repute 28 and qualification to act as a salesperson; and 29 (6) No individual shall be registered or 30 re-registered as a salesperson under this Section unless 31 and until such individual has passed an examination 32 conducted by the Secretary of State or a self-regulatory 33 organization of securities dealers or similar person, 34 which examination has been designated by the Secretary of HB3944 Enrolled -30- LRB9111259STsb 1 State by rule, regulation or order to be satisfactory for 2 purposes of determining whether the applicant has 3 sufficient knowledge of the securities business and laws 4 relating thereto to act as a registered salesperson. 5 Any salesperson who was registered prior to 6 September 30, 1963, and has continued to be so 7 registered, and any individual who has passed a 8 securities salesperson examination administered by the 9 Secretary of State or an examination designated by the 10 Secretary of State by rule, regulation or order to be 11 satisfactory for purposes of determining whether the 12 applicant has sufficient knowledge of the securities 13 business and laws relating thereto to act as a registered 14 salesperson, shall not be required to pass an examination 15 in order to continue to act as a salesperson. The 16 Secretary of State may by order waive the examination 17 requirement for any applicant for registration under this 18 subsection C who has had such experience or education 19 relating to the securities business as may be determined 20 by the Secretary of State to be the equivalent of such 21 examination. Any request for such a waiver shall be 22 filed with the Secretary of State in such form as may be 23 prescribed by rule, regulation or order. 24 (7) The application for registration of a 25 salesperson shall be accompanied by a filing fee and a 26 Securities Audit and Enforcement Fund fee, each in the 27 amount established pursuant to Section 11a of this Act, 28 which shall not be returnable in any event. 29 (8) Any change which renders no longer accurate any 30 information contained in any application for registration 31 or re-registration as a salesperson shall be reported to 32 the Secretary of State within 10 business days after the 33 occurrence of such change. If the activities are 34 terminated which rendered an individual a salesperson for HB3944 Enrolled -31- LRB9111259STsb 1 the dealer, issuer or controlling person, the dealer, 2 issuer or controlling person, as the case may be, shall 3 notify the Secretary of State, in writing, within 30 days 4 of the salesperson's cessation of activities, using the 5 appropriate termination notice form. 6 (9) A registered salesperson may transfer his or 7 her registration under this Section 8 for the unexpired 8 term thereof from one registered dealer or limited 9 Canadian dealer to another by the giving of notice of the 10 transfer by the new registered dealer or limited Canadian 11 dealer to the Secretary of State in such form and subject 12 to such conditions as the Secretary of State shall by 13 rule or regulation prescribe. The new registered dealer 14 or limited Canadian dealer shall promptly file an 15 application for registration of such salesperson as 16 provided in this subsection C, accompanied by the filing 17 fee prescribed by paragraph (7) of this subsection C. 18 C-5. Except with respect to federal covered investment 19 advisers whose only clients are investment companies as 20 defined in the Federal 1940 Act, other investment advisers, 21 federal covered investment advisers, or any similar person 22 which the Secretary of State may prescribe by rule or order, 23 a federal covered investment adviser shall file with the 24 Secretary of State, prior to acting as a federal covered 25 investment adviser in this State, such documents as have been 26 filed with the Securities and Exchange Commission as the 27 Secretary of State by rule or order may prescribe. The 28 notification of a federal covered investment adviser shall be 29 accompanied by a notification filing fee established pursuant 30 to Section 11a of this Act, which shall not be returnable in 31 any event. Every person acting as a federal covered 32 investment adviser in this State shall file a notification 33 filing and pay an annual notification filing fee established 34 pursuant to Section 11a of this Act, which is not returnable HB3944 Enrolled -32- LRB9111259STsb 1 in any event. The failure to file any such notification 2 shall constitute a violation of subsection D of Section 12 of 3 this Act, subject to the penalties enumerated in Section 14 4 of this Act. Until October 10, 1999 or other date as may be 5 legally permissible, a federal covered investment adviser who 6 fails to file the notification or refuses to pay the fees as 7 required by this subsection shall register as an investment 8 adviser with the Secretary of State under Section 8 of this 9 Act. The civil remedies provided for in subsection A of 10 Section 13 of this Act and the civil remedies of rescission 11 and appointment of receiver, conservator, ancillary receiver, 12 or ancillary conservator provided for in subsection F of 13 Section 13 of this Act shall not be available against any 14 person by reason of the failure to file any such notification 15 or to pay the notification fee or on account of the contents 16 of any such notification. 17 D. An application for registration as an investment 18 adviser, executed, verified, or authenticated by or on behalf 19 of the applicant, shall be filed with the Secretary of State, 20 in such form as the Secretary of State may by rule or 21 regulation prescribe, setting forth or accompanied by: 22 (1) The name and form of organization under which 23 the investment adviser engages or intends to engage in 24 business; the state or country and date of its 25 organization; the location of the adviser's principal 26 business office and branch offices, if any; the names and 27 addresses of the adviser's principal, partners, officers, 28 directors, and persons performing similar functions or, 29 if the investment adviser is an individual, of the 30 individual; and the number of the adviser's employees who 31 perform investment advisory functions; 32 (2) The education, the business affiliations for 33 the past 10 years, and the present business affiliations 34 of the investment adviser and of the adviser's principal, HB3944 Enrolled -33- LRB9111259STsb 1 partners, officers, directors, and persons performing 2 similar functions and of any person controlling the 3 investment adviser; 4 (3) The nature of the business of the investment 5 adviser, including the manner of giving advice and 6 rendering analyses or reports; 7 (4) The nature and scope of the authority of the 8 investment adviser with respect to clients' funds and 9 accounts; 10 (5) The basis or bases upon which the investment 11 adviser is compensated; 12 (6) Whether the investment adviser or any 13 principal, partner, officer, director, person performing 14 similar functions or person controlling the investment 15 adviser (i) within 10 years of the filing of the 16 application has been convicted of a felony, or of any 17 misdemeanor of which fraud is an essential element, or 18 (ii) is permanently or temporarily enjoined by order or 19 judgment from acting as an investment adviser, 20 underwriter, dealer, principal or salesperson, or from 21 engaging in or continuing any conduct or practice in 22 connection with any such activity or in connection with 23 the purchase or sale of any security, and in each case 24 the facts relating to the conviction, order or judgment; 25 (7) (a) A statement as to whether the investment 26 adviser is engaged or is to engage primarily in the 27 business of rendering investment supervisory services; 28 and 29 (b) A statement that the investment adviser will 30 furnish his, her, or its clients with such information as 31 the Secretary of State deems necessary in the form 32 prescribed by the Secretary of State by rule or 33 regulation; 34 (8) Such additional information as the Secretary of HB3944 Enrolled -34- LRB9111259STsb 1 State may, by rule, regulation or order prescribe as 2 necessary to determine the applicant's financial 3 responsibility, business repute and qualification to act 4 as an investment adviser. 5 (9) No applicant shall be registered or 6 re-registered as an investment adviser under this Section 7 unless and until each principal of the applicant who is 8 actively engaged in the conduct and management of the 9 applicant's advisory business in this State has passed an 10 examination or completed an educational program conducted 11 by the Secretary of State or an association of investment 12 advisers or similar person, which examination or 13 educational program has been designated by the Secretary 14 of State by rule, regulation or order to be satisfactory 15 for purposes of determining whether the applicant has 16 sufficient knowledge of the securities business and laws 17 relating thereto to conduct the business of a registered 18 investment adviser. 19 Any person who was a registered investment adviser 20 prior to September 30, 1963, and has continued to be so 21 registered, and any individual who has passed an 22 investment adviser examination administered by the 23 Secretary of State, or passed an examination or completed 24 an educational program designated by the Secretary of 25 State by rule, regulation or order to be satisfactory for 26 purposes of determining whether the applicant has 27 sufficient knowledge of the securities business and laws 28 relating thereto to conduct the business of a registered 29 investment adviser, shall not be required to pass an 30 examination or complete an educational program in order 31 to continue to act as an investment adviser. The 32 Secretary of State may by order waive the examination or 33 educational program requirement for any applicant for 34 registration under this subsection D if the principal of HB3944 Enrolled -35- LRB9111259STsb 1 the applicant who is actively engaged in the conduct and 2 management of the applicant's advisory business in this 3 State has had such experience or education relating to 4 the securities business as may be determined by the 5 Secretary of State to be the equivalent of the 6 examination or educational program. Any request for a 7 waiver shall be filed with the Secretary of State in such 8 form as may be prescribed by rule or regulation. 9 (10) No applicant shall be registered or 10 re-registered as an investment adviser under this Section 11 8 unless the application for registration or 12 re-registration is accompanied by an application for 13 registration or re-registration for each person acting as 14 an investment adviser representative on behalf of the 15 adviser and a Securities Audit and Enforcement Fund fee 16 that shall not be returnable in any event is paid with 17 respect to each investment adviser representative. 18 (11) The application for registration of an 19 investment adviser shall be accompanied by a filing fee 20 and a fee for each branch office in this State, in each 21 case in the amount established pursuant to Section 11a of 22 this Act, which fees shall not be returnable in any 23 event. 24 (12) The Secretary of State shall notify the 25 investment adviser by written notice (which may be by 26 electronic or facsimile transmission) of the 27 effectiveness of the registration as an investment 28 adviser in this State. 29 (13) Any change which renders no longer accurate 30 any information contained in any application for 31 registration or re-registration of an investment adviser 32 shall be reported to the Secretary of State within 10 33 business days after the occurrence of the change. In 34 respect to assets and liabilities of an investment HB3944 Enrolled -36- LRB9111259STsb 1 adviser that retains custody of clients' cash or 2 securities or accepts pre-payment of fees in excess of 3 $500 per client and 6 or more months in advance only 4 materially adverse changes need be reported by written 5 notice (which may be by electronic or facsimile 6 transmission) no later than the close of business on the 7 second business day following the discovery thereof. 8 (14) Each application for registration as an 9 investment adviser shall become effective automatically 10 on the 45th day following the filing of the application, 11 required documents or information, and payment of the 12 required fee unless (i) the Secretary of State has 13 registered the investment adviser prior to that date or 14 (ii) an action with respect to the applicant is pending 15 under Section 11 of this Act. 16 D-5. A registered investment adviser or federal covered 17 investment adviser desiring to register an investment 18 adviser representative shall file an application with the 19 Secretary of State, in the form as the Secretary of State may 20 by rule or order prescribe, which the investment adviser 21 representative is required by this Section to provide to the 22 investment adviser, executed, verified, or authenticated by 23 the investment adviser representative and setting forth or 24 accompanied by: 25 (1) The name, residence, and business address of 26 the investment adviser representative; 27 (2) A statement whether any federal or state 28 license or registration as a dealer, salesperson, 29 investment adviser, or investment adviser representative 30 has ever been refused, canceled, suspended, revoked or 31 withdrawn; 32 (3) The nature of employment with, and names and 33 addresses of, employers of the investment adviser 34 representative for the 10 years immediately preceding the HB3944 Enrolled -37- LRB9111259STsb 1 date of application; 2 (4) A brief description of any civil or criminal 3 proceedings, of which fraud is an essential element, 4 pending against the investment adviser representative and 5 whether the investment adviser representative has ever 6 been convicted of a felony or of any misdemeanor of which 7 fraud is an essential element; 8 (5) Such additional information as the Secretary of 9 State may by rule or order prescribe as necessary to 10 determine the investment adviser representative's 11 business repute or qualification to act as an investment 12 adviser representative; 13 (6) Documentation that the individual has passed an 14 examination conducted by the Secretary of State, an 15 organization of investment advisers, or similar person, 16 which examination has been designated by the Secretary of 17 State by rule or order to be satisfactory for purposes of 18 determining whether the applicant has sufficient 19 knowledge of the investment advisory or securities 20 business and laws relating to that business to act as a 21 registered investment adviser representative; and 22 (7) A Securities Audit and Enforcement Fund fee 23 established under Section 11a of this Act, which shall 24 not be returnable in any event. 25 The Secretary of State may by order waive the examination 26 requirement for an applicant for registration under this 27 subsection D-5 who has had the experience or education 28 relating to the investment advisory or securities business as 29 may be determined by the Secretary of State to be the 30 equivalent of the examination. A request for a waiver shall 31 be filed with the Secretary of State in the form as may be 32 prescribed by rule or order. 33 A change that renders no longer accurate any information 34 contained in any application for registration or HB3944 Enrolled -38- LRB9111259STsb 1 re-registration as an investment adviser representative must 2 be reported to the Secretary of State within 10 business days 3 after the occurrence of the change. If the activities that 4 rendered an individual an investment adviser representative 5 for the investment adviser are terminated, the investment 6 adviser shall notify the Secretary of State in writing (which 7 may be by electronic or facsimile transmission), within 30 8 days of the investment adviser representative's termination, 9 using the appropriate termination notice form as the 10 Secretary of State may prescribe by rule or order. 11 A registered investment adviser representative may 12 transfer his or her registration under this Section 8 for the 13 unexpired term of the registration from one registered 14 investment adviser to another by the giving of notice of the 15 transfer by the new investment adviser to the Secretary of 16 State in the form and subject to the conditions as the 17 Secretary of State shall prescribe. The new registered 18 investment adviser shall promptly file an application for 19 registration of the investment adviser representative as 20 provided in this subsection, accompanied by the Securities 21 Audit and Enforcement Fund fee prescribed by paragraph (7) of 22 this subsection D-5. 23 E. (1) Subject to the provisions of subsection F of 24 Section 11 of this Act, the registration of a dealer, limited 25 Canadian dealer, salesperson, investment adviser, or 26 investment adviser representative may be denied, suspended or 27 revoked if the Secretary of State finds that the dealer, 28 limited Canadian dealer, salesperson, investment adviser, or 29 investment adviser representative or any principal officer, 30 director, partner, member, trustee, manager or any person who 31 performs a similar function of the dealer, limited Canadian 32 dealer, or investment adviser: 33 (a) Has been convicted of any felony during the 10 34 year period preceding the date of filing of any HB3944 Enrolled -39- LRB9111259STsb 1 application for registration or at any time thereafter, 2 or of any misdemeanor of which fraud is an essential 3 element; 4 (b) Has engaged in any unethicalinequitable5 practice in the offer or sale of securities or in any 6 fraudulent business practice; 7 (c) Has failed to account for any money or 8 property, or has failed to deliver any security, to any 9 person entitled thereto when due or within a reasonable 10 time thereafter; 11 (d) In the case of a dealer, limited Canadian 12 dealer, or investment adviser, is insolvent; 13 (e) In the case of a dealer,orlimited Canadian 14 dealer, salesperson, or registered principal of a dealer 15 or limited Canadian dealer (i) has failed reasonably to 16 supervise the securities activities of any of its 17 salespersons and the failure has permitted or facilitated 18 a violation of Section 12 of this Act or (ii) is offering 19 or selling or has offered or sold securities in this 20 State through a salesperson other than a registered 21 salesperson, or, in the case of a salesperson, is selling 22 or has sold securities in this State for a dealer, 23 limited Canadian dealer, issuer or controlling person 24 with knowledge that the dealer, limited Canadian dealer, 25 issuer or controlling person has not complied with the 26 provisions of this Act or (iii) has failed reasonably to 27 supervise the implementation of compliance measures 28 following notice by the Secretary of State of 29 noncompliance with the Act or with the regulations 30 promulgated thereunder or both; 31 (f) In the case of an investment adviser, has 32 failed reasonably to supervise the advisory activities of 33 any of its investment adviser representatives or 34 employees and the failure has permitted or facilitated a HB3944 Enrolled -40- LRB9111259STsb 1 violation of Section 12 of this Act; 2 (g) Has violated any of the provisions of this Act; 3 (h) Has made any material misrepresentation to the 4 Secretary of State in connection with any information 5 deemed necessary by the Secretary of State to determine a 6 dealer's, limited Canadian dealer's, or investment 7 adviser's financial responsibility or a dealer's, limited 8 Canadian dealer's, investment adviser's, salesperson's, 9 or investment adviser representative's business repute or 10 qualifications, or has refused to furnish any such 11 information requested by the Secretary of State; 12 (i) Has had a license or registration under any 13 Federal or State law regulating the offer or sale of 14 securities or commodity futures contracts, refused, 15 cancelled, suspended or withdrawn; 16 (j) Has been suspended or expelled from or refused 17 membership in or association with or limited in any 18 capacity by any self-regulatory organization registered 19 under the Federal 1934 Act or the Federal 1974 Act 20 arising from any fraudulent or deceptive act or a 21 practice in violation of any rule, regulation or standard 22 duly promulgated by the self-regulatory organization; 23 (k) Has had any order entered against it after 24 notice and opportunity for hearing by a securities agency 25 of any state, any foreign government or agency thereof, 26 the Securities and Exchange Commission, or the Federal 27 Commodities Futures Trading Commission arising from any 28 fraudulent or deceptive act or a practice in violation of 29 any statute, rule or regulation administered or 30 promulgated by the agency or commission; 31 (l) In the case of a dealer or limited Canadian 32 dealer, fails to maintain a minimum net capital in an 33 amount which the Secretary of State may by rule or 34 regulation require; HB3944 Enrolled -41- LRB9111259STsb 1 (m) Has conducted a continuing course of dealing of 2 such nature as to demonstrate an inability to properly 3 conduct the business of the dealer, limited Canadian 4 dealer, salesperson, investment adviser, or investment 5 adviser representative; 6 (n) Has had, after notice and opportunity for 7 hearing, any injunction or order entered against it or 8 license or registration refused, cancelled, suspended, 9 revoked, withdrawn or limited by any state or federal 10 body, agency or commission regulating banking, insurance, 11 finance or small loan companies, real estate or mortgage 12 brokers or companies, if the action resulted from any act 13 found by the body, agency or commission to be a 14 fraudulent or deceptive act or practice in violation of 15 any statute, rule or regulation administered or 16 promulgated by the body, agency or commission; 17 (o) Has failed to file a return, or to pay the tax, 18 penalty or interest shown in a filed return, or to pay 19 any final assessment of tax, penalty or interest, as 20 required by any tax Act administered by the Illinois 21 Department of Revenue, until such time as the 22 requirements of that tax Act are satisfied; 23 (p) In the case of a natural person who is a 24 dealer, limited Canadian dealer, salesperson, investment 25 adviser, or investment adviser representative, has 26 defaulted on an educational loan guaranteed by the 27 Illinois Student Assistance Commission, until the natural 28 person has established a satisfactory repayment record as 29 determined by the Illinois Student Assistance Commission; 30 (q) Has failed to maintain the books and records 31 required under this Act or rules or regulations 32 promulgated under this Act within a reasonable time after 33 receiving notice of any deficiency; 34 (r) Has refused to allow or otherwise impeded HB3944 Enrolled -42- LRB9111259STsb 1 designees of the Secretary of State from conducting an 2 audit, examination, inspection, or investigation provided 3 for under Section 8 or 11 of this Act; 4 (s) Has failed to maintain any minimum net capital 5 or bond requirement set forth in this Act or any rule or 6 regulation promulgated under this Act; 7 (t) Has refused the Secretary of State or his or 8 her designee access to any office or location within an 9 office to conduct an investigation, audit, examination, 10 or inspection; 11 (u) Has advised or caused a public pension fund or 12 retirement system established under the Illinois Pension 13 Code to make an investment or engage in a transaction not 14 authorized by that Code. 15 (2) If the Secretary of State finds that any registrant 16 or applicant for registration is no longer in existence or 17 has ceased to do business as a dealer, limited Canadian 18 dealer, salesperson, investment adviser, or investment 19 adviser representative, or is subject to an adjudication as a 20 person under legal disability or to the control of a 21 guardian, or cannot be located after reasonable search, or 22 has failed after written notice to pay to the Secretary of 23 State any additional fee prescribed by this Section or 24 specified by rule or regulation, or if a natural person, has 25 defaulted on an educational loan guaranteed by the Illinois 26 Student Assistance Commission, the Secretary of State may by 27 order cancel the registration or application. 28 (3) Withdrawal of an application for registration or 29 withdrawal from registration as a dealer, limited Canadian 30 dealer, salesperson, investment adviser, or investment 31 adviser representative becomes effective 30 days after 32 receipt of an application to withdraw or within such shorter 33 period of time as the Secretary of State may determine, 34 unless any proceeding is pending under Section 11 of this Act HB3944 Enrolled -43- LRB9111259STsb 1 when the application is filed or a proceeding is instituted 2 within 30 days after the application is filed. If a 3 proceeding is pending or instituted, withdrawal becomes 4 effective at such time and upon such conditions as the 5 Secretary of State by order determines. If no proceeding is 6 pending or instituted and withdrawal automatically becomes 7 effective, the Secretary of State may nevertheless institute 8 a revocation or suspension proceeding within 2 yearsone year9 after withdrawal became effective and enter a revocation or 10 suspension order as of the last date on which registration 11 was effective. 12 F. The Secretary of State shall make available upon 13 request the date that each dealer, investment adviser, 14 salesperson, or investment adviser representative was granted 15 registration, together with the name and address of the 16 dealer, limited Canadian dealer, or issuer on whose behalf 17 the salesperson is registered, and all orders of the 18 Secretary of State denying or abandoning an application, or 19 suspending or revoking registration, or censuring the 20 persons. The Secretary of State may designate by rule, 21 regulation or order the statements, information or reports 22 submitted to or filed with him or her pursuant to this 23 Section 8 which the Secretary of State determines are of a 24 sensitive nature and therefore should be exempt from public 25 disclosure. Any such statement, information or report shall 26 be deemed confidential and shall not be disclosed to the 27 public except upon the consent of the person filing or 28 submitting the statement, information or report or by order 29 of court or in court proceedings. 30 G. The registration or re-registration of a dealer or 31 limited Canadian dealer and of all salespersons registered 32 upon application of the dealer or limited Canadian dealer 33 shall expire on the next succeeding anniversary date of the HB3944 Enrolled -44- LRB9111259STsb 1 registration or re-registration of the dealer; and the 2 registration or re-registration of an investment adviser and 3 of all investment adviser representatives registered upon 4 application of the investment adviser shall expire on the 5 next succeeding anniversary date of the registration of the 6 investment adviser; provided, that the Secretary of State may 7 by rule or regulation prescribe an alternate date which any 8 dealer registered under the Federal 1934 Act or a member of 9 any self-regulatory association approved pursuant thereto, a 10 member of a self-regulatory organization or stock exchange in 11 Canada, or any investment adviser may elect as the expiration 12 date of its dealer or limited Canadian dealer and salesperson 13 registrations, or the expiration date of its investment 14 adviser registration, as the case may be. A registration of 15 a salesperson registered upon application of an issuer or 16 controlling person shall expire on the next succeeding 17 anniversary date of the registration, or upon termination or 18 expiration of the registration of the securities, if any, 19 designated in the application for his or her registration or 20 the alternative date as the Secretary may prescribe by rule 21 or regulation. Subject to paragraph (9) of subsection C of 22 this Section 8, a salesperson's registration also shall 23 terminate upon cessation of his or her employment, or 24 termination of his or her appointment or authorization, in 25 each case by the person who applied for the salesperson's 26 registration, provided that the Secretary of State may by 27 rule or regulation prescribe an alternate date for the 28 expiration of the registration. 29 H. Applications for re-registration of dealers, limited 30 Canadian dealers, salespersons, investment advisers, and 31 investment adviser representatives shall be filed with the 32 Secretary of State prior to the expiration of the then 33 current registration and shall contain such information as 34 may be required by the Secretary of State upon initial HB3944 Enrolled -45- LRB9111259STsb 1 application with such omission therefrom or addition thereto 2 as the Secretary of State may authorize or prescribe. Each 3 application for re-registration of a dealer, limited Canadian 4 dealer, or investment adviser shall be accompanied by a 5 filing fee, each application for re-registration as a 6 salesperson shall be accompanied by a filing fee and a 7 Securities Audit and Enforcement Fund fee established 8 pursuant to Section 11a of this Act, and each application for 9 re-registration as an investment adviser representative shall 10 be accompanied by a Securities Audit and Enforcement Fund fee 11 established under Section 11a of this Act, which shall not be 12 returnable in any event. Notwithstanding the foregoing, 13 applications for re-registration of dealers, limited Canadian 14 dealers, and investment advisers may be filed within 30 days 15 following the expiration of the registration provided that 16 the applicant pays the annual registration fee together with 17 an additional amount equal to the annual registration fee and 18 files any other information or documents that the Secretary 19 of State may prescribe by rule or regulation or order. Any 20 application filed within 30 days following the expiration of 21 the registration shall be automatically effective as of the 22 time of the earlier expiration provided that the proper fee 23 has been paid to the Secretary of State. 24 Each registered dealer, limited Canadian dealer, or 25 investment adviser shall continue to be registered if the 26 registrant changes his, her, or its form of organization 27 provided that the dealer or investment adviser files an 28 amendment to his, her, or its application not later than 30 29 days following the occurrence of the change and pays the 30 Secretary of State a fee in the amount established under 31 Section 11a of this Act. 32 I. (1) Every registered dealer, limited Canadian dealer, 33 and investment adviser shall make and keep for such periods, 34 such accounts, correspondence, memoranda, papers, books and HB3944 Enrolled -46- LRB9111259STsb 1 records as the Secretary of State may by rule or regulation 2 prescribe. All records so required shall be preserved for 3 3 years unless the Secretary of State by rule, regulation or 4 order prescribes otherwise for particular types of records. 5 (2) Every registered dealer, limited Canadian dealer, 6 and investment adviser shall file such financial reports as 7 the Secretary of State may by rule or regulation prescribe. 8 (3) All the books and records referred to in paragraph 9 (1) of this subsection I are subject at any time or from time 10 to time to such reasonable periodic, special or other audits, 11 examinations, or inspections by representatives of the 12 Secretary of State, within or without this State, as the 13 Secretary of State deems necessary or appropriate in the 14 public interest or for the protection of investors. 15 (4) At the time of an audit, examination, or inspection, 16 the Secretary of State, by his or her designees, may conduct 17 an interview of any person employed or appointed by or 18 affiliated with a registered dealer, limited Canadian dealer, 19 or investment advisor, provided that the dealer, limited 20 Canadian dealer, or investment advisor shall be given 21 reasonable notice of the time and place for the interview. 22 At the option of the dealer, limited Canadian dealer, or 23 investment advisor, a representative of the dealer or 24 investment advisor with supervisory responsibility over the 25 individual being interviewed may be present at the interview. 26 J. The Secretary of State may require by rule or 27 regulation the payment of an additional fee for the filing of 28 information or documents required to be filed by this Section 29 which have not been filed in a timely manner. The Secretary 30 of State may also require by rule or regulation the payment 31 of an examination fee for administering any examination which 32 it may conduct pursuant to subsection B, C, D, or D-5 of this 33 Section 8. HB3944 Enrolled -47- LRB9111259STsb 1 K. The Secretary of State may declare any application 2 for registration or limited registration under this Section 8 3 abandoned by order if the applicant fails to pay any fee or 4 file any information or document required under this Section 5 8 or by rule or regulation for more than 30 days after the 6 required payment or filing date. The applicant may petition 7 the Secretary of State for a hearing within 15 days after the 8 applicant's receipt of the order of abandonment, provided 9 that the petition sets forth the grounds upon which the 10 applicant seeks a hearing. 11 L. Any document being filed pursuant to this Section 8 12 shall be deemed filed, and any fee being paid pursuant to 13 this Section 8 shall be deemed paid, upon the date of actual 14 receipt thereof by the Secretary of State or his or her 15 designee. 16 M. The Secretary of State shall provide to the Illinois 17 Student Assistance Commission annually or at mutually agreed 18 periodic intervals the names and social security numbers of 19 natural persons registered under subsections B, C, D, and D-5 20 of this Section. The Illinois Student Assistance Commission 21 shall determine if any student loan defaulter is registered 22 as a dealer, limited Canadian dealer, salesperson, or 23 investment adviser under this Act and report its 24 determination to the Secretary of State or his or her 25 designee. 26 (Source: P.A. 89-209, eff. 1-1-96; 89-626, eff. 8-9-96; 27 90-70, eff. 7-8-97; 90-507, eff. 8-22-97; 90-655, eff. 28 7-30-98.) 29 (815 ILCS 5/11) (from Ch. 121 1/2, par. 137.11) 30 Sec. 11. Duties and powers of the Secretary of State. 31 A. (1) The administration of this Act is vested in the 32 Secretary of State, who may from time to time make, amend and HB3944 Enrolled -48- LRB9111259STsb 1 rescind such rules and regulations as may be necessary to 2 carry out this Act, including rules and regulations governing 3 procedures of registration, statements, applications and 4 reports for various classes of securities, persons and 5 matters within his or her jurisdiction and defining any 6 terms, whether or not used in this Act, insofar as the 7 definitions are not inconsistent with this Act. The rules 8 and regulations adopted by the Secretary of State under this 9 Act shall be effective in the manner provided for in the 10 Illinois Administrative Procedure Act. 11 (2) Among other things, the Secretary of State shall 12 have authority, for the purposes of this Act, to prescribe 13 the form or forms in which required information shall be set 14 forth, accounting practices, the items or details to be shown 15 in balance sheets and earning statements, and the methods to 16 be followed in the preparation of accounts, in the appraisal 17 or valuation of assets and liabilities, in the determination 18 of depreciation and depletion, in the differentiation of 19 recurring and non-recurring income, in the differentiation of 20 investment and operating income, and in the preparation of 21 consolidated balance sheets or income accounts of any person, 22 directly or indirectly, controlling or controlled by the 23 issuer, or any person under direct or indirect common control 24 with the issuer. 25 (3) No provision of this Act imposing any liability 26 shall apply to any act done or omitted in good faith in 27 conformity with any rule or regulation of the Secretary of 28 State under this Act, notwithstanding that the rule or 29 regulation may, after the act or omission, be amended or 30 rescinded or be determined by judicial or other authority to 31 be invalid for any reason. 32 (4) The Securities Department of the Office of the 33 Secretary of State shall be deemed a criminal justice agency 34 for purposes of all federal and state laws and regulations HB3944 Enrolled -49- LRB9111259STsb 1 and, in that capacity, shall be entitled to access to any 2 information available to criminal justice agencies. 3 (5) The Secretary of State, by rule, may conditionally 4 or unconditionally exempt any person, security, or 5 transaction, or any class or classes of persons, securities, 6 or transactions from any provision of Section 5, 6, 7, 8, 8a, 7 or 9 of this Act or of any rule promulgated under these 8 Sections, to the extent that such exemption is necessary or 9 appropriate in the public interest, and is consistent with 10 the protection of investors. 11 B. The Secretary of State may, anything in this Act to 12 the contrary notwithstanding, require financial statements 13 and reports of the issuer, dealer, salesperson, or investment 14 adviser as often as circumstances may warrant. In addition, 15 the Secretary of State may secure information or books and 16 records from or through others and may make or cause to be 17 made investigations respecting the business, affairs, and 18 property of the issuer of securities, any person involved in 19 the sale or offer for sale, purchase or offer to purchase of 20 any mineral investment contract, mineral deferred delivery 21 contract, or security and of dealers, salespersons, and 22 investment advisers that are registered or are the subject of 23 an application for registration under this Act. The costs of 24 an investigation shall be borne by the registrant or the 25 applicant, provided that the registrant or applicant shall 26 not be obligated to pay the costs without his, her or its 27 consent in advance. 28 C. Whenever it shall appear to the Secretary of State, 29 either upon complaint or otherwise, that this Act, or any 30 rule or regulation prescribed under authority thereof, has 31 been or is about to be violated, he or she may, in his or her 32 discretion, do one or both of the following: 33 (1) require or permit the person to file with the 34 Secretary of State a statement in writing under oath, or HB3944 Enrolled -50- LRB9111259STsb 1 otherwise, as to all the facts and circumstances 2 concerning the subject matter which the Secretary of 3 State believes to be in the public interest to 4 investigate, audit, examine, or inspect; and 5 (2) conduct an investigation, audit, examination, 6 or inspection as necessary or advisable for the 7 protection of the interests of the public. 8 D. (1) For the purpose of all investigations, audits, 9 examinations, or inspections which in the opinion of the 10 Secretary of State are necessary and proper for the 11 enforcement of this Act, the Secretary of State or a person 12 designated by him or her is empowered to administer oaths and 13 affirmations, subpoena witnesses, take evidence, and require 14 the production of any books and records, papers, or other 15 documents which the Secretary of State or a person designated 16 by him or her deems relevant or material to the inquiry. 17 (2) The Secretary of State or a person designated by him 18 or her is further empowered to administer oaths and 19 affirmations, subpoena witnesses, take evidence, and require 20 the production of any books and records, papers, or other 21 documents in this State at the request of a securities agency 22 of another state, if the activities constituting the alleged 23 violation for which the information is sought would be in 24 violation of Section 12 of this Act if the activities had 25 occurred in this State. 26 (3) The Circuit Court of any County of this State, upon 27 application of the Secretary of State or a person designated 28 by him or her may order the attendance of witnesses, the 29 production of books and records, papers, accounts and 30 documents and the giving of testimony before the Secretary of 31 State or a person designated by him or her; and any failure 32 to obey the order may be punished by the Circuit Court as a 33 contempt thereof. 34 (4) The fees of subpoenaed witnesses under this Act for HB3944 Enrolled -51- LRB9111259STsb 1 attendance and travel shall be the same as fees of witnesses 2 before the Circuit Courts of this State, to be paid when the 3 witness is excused from further attendance, provided, the 4 witness is subpoenaed at the instance of the Secretary of 5 State; and payment of the fees shall be made and audited in 6 the same manner as other expenses of the Secretary of State. 7 (5) Whenever a subpoena is issued at the request of a 8 complainant or respondent as the case may be, the Secretary 9 of State may require that the cost of service and the fee of 10 the witness shall be borne by the party at whose instance the 11 witness is summoned. 12 (6) The Secretary of State shall have power at his or 13 her discretion, to require a deposit to cover the cost of the 14 service and witness fees and the payment of the legal witness 15 fee and mileage to the witness served with subpoena. 16 (7) A subpoena issued under this Act shall be served in 17 the same manner as a subpoena issued out of a circuit court. 18 (8) The Secretary of State may in any investigation, 19 audits, examinations, or inspections cause the taking of 20 depositions of persons residing within or without this State 21 in the manner provided in civil actions under the laws of 22 this State. 23 E. Anything in this Act to the contrary notwithstanding: 24 (1) If the Secretary of State shall find that the 25 offer or sale or proposed offer or sale or method of 26 offer or sale of any securities by any person, whether 27 exempt or not, in this State, is fraudulent, or would 28 work or tend to work a fraud or deceit, or is being 29 offered or sold in violation of Section 12, or there has 30 been a failure or refusal to submit any notification 31 filing or fee required under this Act, the Secretary of 32 State may by written order prohibit or suspend the offer 33 or sale of securities by that person or deny or revoke 34 the registration of the securities or the exemption from HB3944 Enrolled -52- LRB9111259STsb 1 registration for the securities. 2 (2) If the Secretary of State shall find that any 3 person has violated subsection C, D, E, F, G, H, I, J, or 4 K of Section 12 of this Act, the Secretary of State may 5 by written order temporarily or permanently prohibit or 6 suspend the person from offering or selling any 7 securities, any mineral investment contract, or any 8 mineral deferred delivery contract in this State, 9 provided that any person who is the subject of an order 10 of permanent prohibition may petition the Secretary of 11 State for a hearing to present evidence of rehabilitation 12 or change in circumstances justifying the amendment or 13 termination of the order of permanent prohibition. 14 (3) If the Secretary of State shall find that any 15 person is engaging or has engaged in the business of 16 selling or offering for sale securities as a dealer or 17 salesperson or is acting or has acted as an investment 18 adviser, investment adviser representative, or federal 19 covered investment adviser, without prior thereto and at 20 the time thereof having complied with the registration or 21 notice filing requirements of this Act, the Secretary of 22 State may by written order prohibit or suspend the person 23 from engaging in the business of selling or offering for 24 sale securities, or acting as an investment adviser, 25 investment adviser representative, or federal covered 26 investment adviser, in this State. 27 (4) In addition to any other sanction or remedy 28 contained in this subsection E, the Secretary of State, 29 after finding that any provision of this Act has been 30 violated, may impose a fine as provided by rule, 31 regulation or order not to exceed $10,000 for each 32 violation of this Act, and may issue an order of public 33 censure against the violator. 34 F. (1) The Secretary of State shall not deny, suspend or HB3944 Enrolled -53- LRB9111259STsb 1 revoke the registration of securities, suspend or revoke the 2 registration of a dealer, salesperson or investment adviser, 3 prohibit or suspend the offer or sale of any securities, 4 prohibit or suspend any person from offering or selling any 5 securities in this State, prohibit or suspend a dealer or 6 salesperson from engaging in the business of selling or 7 offering for sale securities, prohibit or suspend a person 8 from acting as an investment adviser or federal covered 9 investment adviser, impose any fine for violation of this 10 Act, issue an order of public censure, or enter into an 11 agreed settlement except after an opportunity for hearing 12 upon not less than 10 days notice given by personal service 13 or registered mail or certified mail, return receipt 14 requested, to the person or persons concerned. Such notice 15 shall state the date and time and place of the hearing and 16 shall contain a brief statement of the proposed action of the 17 Secretary of State and the grounds for the proposed action. 18 A failure to appear at the hearing or otherwise respond to 19 the allegations set forth in the notice of hearing shall 20 constitute an admission of any facts alleged therein and 21 shall constitute sufficient basis to enter an order. 22 (2) Anything herein contained to the contrary 23 notwithstanding, the Secretary of State may temporarily 24 prohibit or suspend, for a maximum period of 9060days, by 25 an order effective immediately, the offer or sale or 26 registration of securities, the registration of a dealer, 27 salesperson,orinvestment adviser, or investment adviser 28 representative, or the offer or sale of securities by any 29 person, or the business of rendering investment advice, 30 without the notice and prior hearing in this subsection 31 prescribed, if the Secretary of State shall in his or her 32 opinion, based on credible evidence, deem it necessary to 33 prevent an imminent violation of this Act or to prevent 34 losses to investors which the Secretary of State reasonably HB3944 Enrolled -54- LRB9111259STsb 1 believes will occur as a result of a prior violation of this 2 Act. Immediately after taking action without such notice and 3 hearing, the Secretary of State shall deliver a copy of the 4 temporary order to the respondent named therein by personal 5 service or registered mail or certified mail, return receipt 6 requested. The temporary order shall set forth the grounds 7 for the action and shall advise that the respondent may 8 request a hearing as soon as reasonably practicable, that the 9 request for a hearing will not stop the effectiveness of the 10 temporary order and that respondent's failure to request a 11 hearing within 30 days after the date of the entry of the 12 temporary order shall constitute an admission of any facts 13 alleged therein and shall constitute sufficient basis to make 14 the temporary order final. Any provision of this paragraph 15 (2) to the contrary notwithstanding, the Secretary of State 16 may not pursuant to the provisions of this paragraph (2) 17 suspend the registration of a dealer, limited Canadian 18 dealer, salesperson, investment adviser, or investment 19 adviser representative based upon sub-paragraph (n) of 20 paragraph (l) of subsection E of Section 8 of this Act or 21 revoke the registration of securities or revoke the 22 registration of any dealer, salesperson, investment adviser 23 representative, or investment adviser. 24 (3) The Secretary of State may issue a temporary order 25 suspending or delaying the effectiveness of any registration 26 of securities under subsection A or B of Section 5, 6 or 7 of 27 this Act subsequent to and upon the basis of the issuance of 28 any stop, suspension or similar order by the Securities and 29 Exchange Commission with respect to the securities which are 30 the subject of the registration under subsection A or B of 31 Section 5, 6 or 7 of this Act, and the order shall become 32 effective as of the date and time of effectiveness of the 33 Securities and Exchange Commission order and shall be vacated 34 automatically at such time as the order of the Securities and HB3944 Enrolled -55- LRB9111259STsb 1 Exchange Commission is no longer in effect. 2 (4) When the Secretary of State finds that an 3 application for registration as a dealer, salesperson or 4 investment adviser should be denied, the Secretary of State 5 may enter an order denying the registration. Immediately 6 after taking such action, the Secretary of State shall 7 deliver a copy of the order to the respondent named therein 8 by personal service or registered mail or certified mail, 9 return receipt requested. The order shall state the grounds 10 for the action and that the matter will be set for hearing 11 upon written request filed with the Secretary of State within 12 30 days after the receipt of the request by the respondent. 13 The respondent's failure to request a hearing within 30 days 14 after receipt of the order shall constitute an admission of 15 any facts alleged therein and shall make the order final. If 16 a hearing is held, the Secretary of State shall affirm, 17 vacate, or modify the order. 18 (5) The findings and decision of the Secretary of State 19 upon the conclusion of each final hearing held pursuant to 20 this subsection shall be set forth in a written order signed 21 on behalf of the Secretary of State by his or her designee 22 and shall be filed as a public record. All hearings shall be 23 held before a person designated by the Secretary of State, 24 and appropriate records thereof shall be kept. 25 (6) Notwithstanding the foregoing, the Secretary of 26 State, after notice and opportunity for hearing, may at his 27 or her discretion enter into an agreed settlement, 28 stipulation or consent order with a respondent in accordance 29 with the provisions of the Illinois Administrative Procedure 30 Act. The provisions of the agreed settlement, stipulation or 31 consent order shall have the full force and effect of an 32 order issued by the Secretary of State. 33 (7) Anything in this Act to the contrary 34 notwithstanding, whenever the Secretary of State finds that a HB3944 Enrolled -56- LRB9111259STsb 1 person is currently expelled from, refused membership in or 2 association with, or limited in any material capacity by a 3 self-regulatory organization registered under the Federal 4 1934 Act or the Federal 1974 Act because of a fraudulent or 5 deceptive act or a practice in violation of a rule, 6 regulation, or standard duly promulgated by the 7 self-regulatory organization, the Secretary of State may, at 8 his or her discretion, enter a Summary Order of Prohibition, 9 which shall prohibit the offer or sale of any securities, 10 mineral investment contract, or mineral deferred delivery 11 contract by the person in this State. The order shall take 12 effect immediately upon its entry. Immediately after taking 13 the action the Secretary of State shall deliver a copy of the 14 order to the named Respondent by personal service or 15 registered mail or certified mail, return receipt requested. 16 A person who is the subject of an Order of Prohibition may 17 petition the Secretary of State for a hearing to present 18 evidence of rehabilitation or change in circumstances 19 justifying the amendment or termination of the Order of 20 Prohibition. 21 G. No administrative action shall be brought by the 22 Secretary of State for relief under this Act or upon or 23 because of any of the matters for which relief is granted by 24 this Act after the earlier to occur of (i) 3 years from the 25 date upon which the Secretary of State had notice of facts 26 which in the exercise of reasonable diligence would lead to 27 actual knowledge of the alleged violation of the Act, or (ii) 28 5 years from the date on which the alleged violation 29 occurred. 30 H. The action of the Secretary of State in denying, 31 suspending, or revoking the registration of a dealer, limited 32 Canadian dealer, salesperson, investment adviser, or 33 investment adviser representative, in prohibiting any person 34 from engaging in the business of offering or selling HB3944 Enrolled -57- LRB9111259STsb 1 securities as a dealer, limited Canadian dealer, or 2 salesperson, in prohibiting or suspending the offer or sale 3 of securities by any person, in prohibiting a person from 4 acting as an investment adviser, federal covered investment 5 adviser, or investment adviser representative, in denying, 6 suspending, or revoking the registration of securities, in 7 prohibiting or suspending the offer or sale or proposed offer 8 or sale of securities, in imposing any fine for violation of 9 this Act, or in issuing any order shall be subject to 10 judicial review in the Circuit Court of any county in this 11 State. The Administrative Review Law shall apply to and 12 govern every action for the judicial review of final actions 13 or decisions of the Secretary of State under this Act. 14 I. Notwithstanding any other provisions of this Act to 15 the contrary, whenever it shall appear to the Secretary of 16 State that any person is engaged or about to engage in any 17 acts or practices which constitute or will constitute a 18 violation of this Act or of any rule or regulation prescribed 19 under authority of this Act, the Secretary of State may at 20 his or her discretion, through the Attorney General: 21 (1) file a complaint and apply for a temporary 22 restraining order without notice, and upon a proper 23 showing the court may enter a temporary restraining order 24 without bond, to enforce this Act; and 25 (2) file a complaint and apply for a preliminary or 26 permanent injunction, and, after notice and a hearing and 27 upon a proper showing, the court may grant a preliminary 28 or permanent injunction and may order the defendant to 29 make an offer of rescission with respect to any sales or 30 purchases of securities, mineral investment contracts, or 31 mineral deferred delivery contracts determined by the 32 court to be unlawful under this Act. 33 The court shall further have jurisdiction and authority, 34 in addition to the penalties and other remedies in this Act HB3944 Enrolled -58- LRB9111259STsb 1 provided, to enter an order for the appointment of the court 2 or a person as a receiver, conservator, ancillary receiver or 3 ancillary conservator for the defendant or the defendant's 4 assets located in this State, or to require restitution, 5 damages or disgorgement of profits on behalf of the person or 6 persons injured by the act or practice constituting the 7 subject matter of the action, and may assess costs against 8 the defendant for the use of the State; provided, however, 9 that the civil remedies of rescission and appointment of a 10 receiver, conservator, ancillary receiver or ancillary 11 conservator shall not be available against any person by 12 reason of the failure to file with the Secretary of State, or 13 on account of the contents of, any report of sale provided 14 for in subsection G or P of Section 4, paragraph (2) of 15 subsection D of Sections 5 and 6, or paragraph (2) of 16 subsection F of Section 7 of this Act. Appeals may be taken 17 as in other civil cases. 18 J. In no case shall the Secretary of State, or any of 19 his or her employees or agents, in the administration of this 20 Act, incur any official or personal liability by instituting 21 an injunction or other proceeding or by denying, suspending 22 or revoking the registration of a dealer or salesperson, or 23 by denying, suspending or revoking the registration of 24 securities or prohibiting the offer or sale of securities, or 25 by suspending or prohibiting any person from acting as a 26 dealer, limited Canadian dealer, salesperson, investment 27 adviser, or investment adviser representative or from 28 offering or selling securities. 29 K. No provision of this Act shall be construed to 30 require or to authorize the Secretary of State to require any 31 investment adviser or federal covered investment adviser 32 engaged in rendering investment supervisory services to 33 disclose the identity, investments, or affairs of any client 34 of the investment adviser or federal covered investment HB3944 Enrolled -59- LRB9111259STsb 1 adviser, except insofar as the disclosure may be necessary or 2 appropriate in a particular proceeding or investigation 3 having as its object the enforcement of this Act. 4 L. Whenever, after an examination, investigation or 5 hearing, the Secretary of State deems it of public interest 6 or advantage, he or she may certify a record to the State's 7 Attorney of the county in which the act complained of, 8 examined or investigated occurred. The State's Attorney of 9 that county within 90 days after receipt of the record shall 10 file a written statement at the Office of the Secretary of 11 State, which statement shall set forth the action taken upon 12 the record, or if no action has been taken upon the record 13 that fact, together with the reasons therefor, shall be 14 stated. 15 M. The Secretary of State may initiate, take, pursue, or 16 prosecute any action authorized or permitted under Section 6d 17 of the Federal 1974 Act. 18 N. (1) Notwithstanding any provision of this Act to the 19 contrary, to encourage uniform interpretation, 20 administration, and enforcement of the provisions of this 21 Act, the Secretary of State may cooperate with the securities 22 agencies or administrators of one or more states, Canadian 23 provinces or territories, or another country, the Securities 24 and Exchange Commission, the Commodity Futures Trading 25 Commission, the Securities Investor Protection Corporation, 26 any self-regulatory organization, and any governmental law 27 enforcement or regulatory agency. 28 (2) The cooperation authorized by paragraph (1) of this 29 subsection includes, but is not limited to, the following: 30 (a) establishing or participating in a central 31 depository or depositories for registration under this 32 Act and for documents or records required under this Act; 33 (b) making a joint audit, inspection, examination, 34 or investigation; HB3944 Enrolled -60- LRB9111259STsb 1 (c) holding a joint administrative hearing; 2 (d) filing and prosecuting a joint civil or 3 criminal proceeding; 4 (e) sharing and exchanging personnel; 5 (f) sharing and exchanging information and 6 documents; or 7 (g) issuing any joint statement or policy. 8 (Source: P.A. 89-209, eff. 1-1-96; 89-626, eff. 8-9-96; 9 90-70, eff. 7-8-97.) 10 (815 ILCS 5/12) (from Ch. 121 1/2, par. 137.12) 11 Sec. 12. Violation. It shall be a violation of the 12 provisions of this Act for any person: 13 A. To offer or sell any security except in accordance 14 with the provisions of this Act. 15 B. To deliver to a purchaser any security required to be 16 registered under Section 5, Section 6 or Section 7 hereof 17 unless accompanied or preceded by a prospectus that meets the 18 requirements of the pertinent subsection of Section 5 or of 19 Section 6 or of Section 7. 20 C. To act as a dealer, salesperson,orinvestment 21 adviser, or investment adviser representative, unless 22 registered as such, where such registration is required, 23 under the provisions of this Act. 24 D. To fail to file with the Secretary of State any 25 application, report or document required to be filed under 26 the provisions of this Act or any rule or regulation made by 27 the Secretary of State pursuant to this Act or to fail to 28 comply with the terms of any order of the Secretary of State 29 issued pursuant to Section 11 hereof. 30 E. To make, or cause to be made, (1) in any application, 31 report or document filed under this Act or any rule or 32 regulation made by the Secretary of State pursuant to this 33 Act, any statement which was false or misleading with respect HB3944 Enrolled -61- LRB9111259STsb 1 to any material fact or (2) any statement to the effect that 2 a security (other than a security issued by the State of 3 Illinois) has been in any way endorsed or approved by the 4 Secretary of State or the State of Illinois. 5 F. To engage in any transaction, practice or course of 6 business in connection with the sale or purchase of 7 securities which works or tends to work a fraud or deceit 8 upon the purchaser or seller thereof. 9 G. To obtain money or property through the sale of 10 securities by means of any untrue statement of a material 11 fact or any omission to state a material fact necessary in 12 order to make the statements made, in the light of the 13 circumstances under which they were made, not misleading. 14 H. To sign or circulate any statement, prospectus, or 15 other paper or document required by any provision of this Act 16 knowing or having reasonable grounds to know any material 17 representation therein contained to be false or untrue. 18 I. To employ any device, scheme or artifice to defraud 19 in connection with the sale or purchase of any security, 20 directly or indirectly. 21 J. When acting as an investment adviser, investment 22 adviser representative, or federal covered investment 23 adviser, by any means or instrumentality, directly or 24 indirectly: 25 (1) To employ any device, scheme or artifice to 26 defraud any client or prospective client; 27 (2) To engage in any transaction, practice, or 28 course of business which operates as a fraud or deceit 29 upon any client or prospective client; or 30 (3) To engage in any act, practice, or course of 31 business which is fraudulent, deceptive or manipulative. 32 The Secretary of State shall for the purposes of this 33 paragraph (3), by rules and regulations, define and 34 prescribe means reasonably designed to prevent such acts, HB3944 Enrolled -62- LRB9111259STsb 1 practices, and courses of business as are fraudulent, 2 deceptive, or manipulative. 3 K. When offering or selling any mineral investment 4 contract or mineral deferred delivery contract: 5 (1) To employ any device, scheme, or artifice to 6 defraud any customer, prospective customer, or offeree; 7 (2) To engage in any transaction, practice, or 8 course of business that operates as a fraud or deceit 9 upon any customer, prospective customer, or offeree; or 10 (3) To engage in any act, practice, or course of 11 business that is fraudulent, deceptive, or manipulative. 12 The Secretary of State shall for the purposes of this 13 paragraph (3), by rules and regulations, define and 14 prescribe means reasonably designed to prevent acts, 15 practices, and courses of business as are fraudulent, 16 deceptive, or manipulative. 17 (Source: P.A. 90-70, eff. 7-8-97.) 18 Section 15. The Illinois Business Brokers Act of 1995 is 19 amended by changing Sections 10-25 and 10-60 as follows: 20 (815 ILCS 307/10-25) 21 Sec. 10-25. Fees and funds. All fees and funds accruing 22 for the administration of this Act shall be accounted for by 23 the Secretary of State and shall be deposited with the State 24 Treasurer who shall deposit them in the Securities Audit and 25 Enforcement Fund. 26 (a) The Secretary of State shall, by rule or regulation, 27 impose and collect fees necessary for the administration of 28 this Act, including but not limited to, fees for the 29 following purposes: 30 (1) Filing an application pursuant to Section 10-10 31 of this Act; 32 (2) Examining an application pursuant to Sections HB3944 Enrolled -63- LRB9111259STsb 1 10-10 and 10-20 of this Act; 2 (3) Registering a business broker under Section 3 10-10 of this Act; 4 (4) Renewing registration of a business broker 5 pursuant to Section 10-20 of this Act; 6 (5) Failure to file or file timely any document or 7 information required under this Act; 8 (6) (Blank).Filing a notice of lien with the9Secretary of State pursuant to Section 10-115 of this10Act.11 (b) The Secretary of State may, by rule or regulation, 12 raise or lower any fee imposed by, and which he or she is 13 authorized by law to collect under, this Act. 14 (Source: P.A. 90-70, eff. 7-8-97; 91-194, eff. 7-20-99; 15 91-534, eff. 1-1-00.) 16 (815 ILCS 307/10-60) 17 Sec. 10-60. Violations; liability of business broker to 18 damaged parties; rights of prospective client. A person who 19 commits a material violation of this Act, in connection with 20 a contract for the services of a business broker, is liable 21 to any client damaged by the violation, for the amount of the 22 actual damages suffered, but not more than the fees actually 23 paid by the client seeking relief, together with interest at 24 the legal rate, and attorney fees. If a business broker 25 commits a material violation of SectionSections10-10, 26 10-20, orand10-30 of this Act, in connection with a 27 contract for business brokering services, the contract is 28 void, and the prospective client is entitled to receive from 29 the business broker all sums paid to the business broker, 30 with interest and any attorney's fee required to enforce this 31 Section. 32 (Source: P.A. 89-209, eff. 1-1-96; 90-70, eff. 7-8-97.) HB3944 Enrolled -64- LRB9111259STsb 1 Section 20. The Business Opportunity Sales Law of 1995 is 2 amended by changing Sections 5-5.10, 5-10, and 5-45 as 3 follows: 4 (815 ILCS 602/5-5.10) 5 Sec. 5-5.10. Business opportunity. 6 (a) "Business opportunity" means a contract or 7 agreement, between a seller and purchaser, express or 8 implied, orally or in writing, wherein it is agreed that the 9 seller or a person recommended by the seller shall provide to 10 the purchaser any product, equipment, supplies or services 11 enabling the purchaser to start a business when the purchaser 12 is required to make a payment to the seller or a person 13 recommended by the sellerof more than $500and the seller 14 represents directly or indirectly, orally or in writing, 15 that: 16 (1) the seller or a person recommended by the 17 seller will provide or assist the purchaser in finding 18 locations for the use or operation of vending machines, 19 racks, display cases or other similar devices, on 20 premises neither owned nor leased by the purchaser or 21 seller; 22 (2) the seller or a person recommended by the 23 seller will provide or assist the purchaser in finding 24 outlets or accounts for the purchaser's products or 25 services; 26 (3) the seller or a person specified by the seller 27 will purchase any or all products made, produced, 28 fabricated, grown, bred or modified by the purchaser; 29 (4) the seller guarantees that the purchaser will 30 derive income from the business which exceeds the price 31 paid to the seller; 32 (5) the seller will refund all or part of the price 33 paid to the seller, or repurchase any of the products, HB3944 Enrolled -65- LRB9111259STsb 1 equipment or supplies provided by the seller or a person 2 recommended by the seller, if the purchaser is 3 dissatisfied with the business; or 4 (6) the seller will provide a marketing plan, 5 provided that this Law shall not apply to the sale of a 6 marketing plan made in conjunction with the licensing of 7 a federally registered trademark or federally registered 8 service mark. 9 (b) "Business opportunity" does not include: 10 (1) any offer or sale of an ongoing business 11 operated by the seller and to be sold in its entirety; 12 (2) any offer or sale of a business opportunity to 13 an ongoing business where the seller will provide 14 products, equipment, supplies or services which are 15 substantially similar to the products, equipment, 16 supplies or services sold by the purchaser in connection 17 with the purchaser's ongoing business; 18 (3) any offer or sale of a business opportunity 19 which is a franchise as defined by the Franchise 20 Disclosure Act of 1987; 21 (4) any offer or sale of a business opportunity 22 which is registered pursuant to the Illinois Securities 23 Law of 1953; 24 (5) (blank);any offer or sale of a business25opportunity which involves a marketing plan made in26conjunction with the licensing of a federally registered27trademark or federally registered service mark provided28that the seller had a minimum net worth of $1,000,000 as29determined on the basis of the seller's most recent30audited financial statement prepared within 13 months of31the first offer in this State. Net worth may be32determined on a consolidated basis where the seller is at33least 80% owned by one person and that person expressly34guarantees the obligations of the seller with regard toHB3944 Enrolled -66- LRB9111259STsb 1the offer or sale of any business opportunity claimed to2be excluded under this item;3 (6) any offer or sale of a business opportunity by 4 an executor, administrator, sheriff, marshal, receiver, 5 trustee in bankruptcy, guardian or conservator or a 6 judicial offer or sale, of a business opportunity; or 7 (7) cash payments made by a purchaser not exceeding 8 $500 and the payment is made for the not-for-profit sale 9 of sales demonstration equipment, material or samples, or 10 the payment is made for product inventory sold to the 11 purchaser at a bona fide wholesale price. 12 (Source: P.A. 90-70, eff. 7-8-97; 91-357, eff. 7-29-99.) 13 (815 ILCS 602/5-10) 14 Sec. 5-10. Exemptions. Registration pursuant to Section 15 5-30This Lawshall not apply to any of the following: 16 (a) Any offer or sale of a business opportunity for 17 which the immediate cash payment made by the purchaser for 18 any business opportunity is at least $25,000 if the immediate 19 cash payment does not exceed 20% of the purchaser's net 20 worth as determined exclusive of principal residence, 21 furnishings therein, and automobiles; provided, however, the 22 Secretary of State may by rule or regulation withdraw or 23 further condition the availability of this exemption. 24 (b) Any offer or sale of a business opportunityfor25 which the seller does not advertise, solicit, or sell for 26purchaser is not required to makean initial payment to the 27 seller or a person recommended by the seller exceeding $500. 28 (c) Any offer or sale of a business opportunity where 29 the seller has a net worth of not less than $1,000,000 as 30 determined on the basis of the seller's most recent audited 31 financial statement, prepared within 13 months of the first 32 offer in this State. Net worth may be determined on a 33 consolidated basis where the seller is at least 80% owned by HB3944 Enrolled -67- LRB9111259STsb 1 one person and that person expressly guarantees the 2 obligations of the seller with regard to the offer or sale of 3 any business opportunity claimed to be exempt under this 4 subsection. The Secretary of State may by rule or regulation 5 withdraw or further condition the availability of this 6 exemption. 7 (d) Any offer or sale of a business opportunity where 8 the purchaser has a net worth of not less than $250,000. Net 9 worth shall be determined exclusive of principal residence, 10 furnishings therein, and automobiles. The Secretary of State 11 may by rule or regulation withdraw or further condition the 12 availability of this exemption. 13 (e) Any offer or sale of a business opportunity where 14 the purchaser is a bank, savings and loan association, trust 15 company, insurance company, credit union, or investment 16 company as defined by the federal Investment Company Act of 17 1940, pension or profit sharing trust, or other financial 18 institution or institutional buyer, or a dealer registered 19 under the Illinois Securities Law of 1953, where the 20 purchaser is acting for itself or in a fiduciary capacity. 21 (f) Any offer or sale of a business opportunity which is 22 defined as a franchise under the Franchise Disclosure Act of 23 1987 provided that the seller delivers to each purchaser at 24 the earlier of the first personal meeting, or 10 business 25 days prior to the earlier of the execution by a purchaser of 26 any contract or agreement imposing a binding legal obligation 27 on the purchaser or the payment by a purchaser of any 28 consideration in connection with the offer or sale of the 29 business opportunity, one of the following disclosure 30 documents: 31 (1) The Franchise Offering Circular provided for 32 under the Franchise Disclosure Act of 1987 which the 33 Secretary of State may adopt by rule or regulation; or 34 (2) A disclosure document prepared pursuant to the HB3944 Enrolled -68- LRB9111259STsb 1 Federal Trade Commission rule entitled Disclosure 2 Requirements and Prohibitions Concerning Franchising and 3 Business Opportunity Ventures, 16 C.F.R. Sec. 436 (1979). 4 For the purposes of this subsection, a personal meeting 5 shall mean a face-to-face meeting between the purchaser 6 and the seller or their representatives, which is held 7 for the purpose of discussing the offer or sale of a 8 business opportunity. 9 (g) Any offer or sale of a business opportunity for 10 which the cash payment required to be made by a purchaser for 11 any business opportunity does not exceed $500 and the payment 12 is made for the not-for-profit sale of sales demonstration 13 equipment, material, or samples or the payment is made for 14 product inventory sold to the purchaser at a bona fide 15 wholesale price. 16 (h) Any offer or sale of a business opportunity which 17 the Secretary of State exempts by order or a class of 18 business opportunities which the Secretary of State exempts 19 by rule or regulation upon the finding that such exemption 20 would not be contrary to public interest and that 21 registration would not be necessary or appropriate for the 22 protection of purchasers. 23 (Source: P.A. 89-209, eff. 1-1-96.) 24 (815 ILCS 602/5-45) 25 Sec. 5-45. Denial, suspension, or revocation of 26 registration. 27 (a) The Secretary of State may issue an order denying 28 effectiveness to, or suspending or revoking the effectiveness 29 of, a registration if the Secretary of State finds that the 30 order is in the public interest and that any of the following 31 exist: 32 (1) The registration as of its effective date or as 33 of any earlier date in the case of an order denying HB3944 Enrolled -69- LRB9111259STsb 1 effectiveness, or any amendment as of its effective date, 2 or any report is incomplete in any material respect or 3 contains any statement which was, in the light of the 4 circumstances under which it was made, false or 5 misleading with respect to any material fact. 6 (2) Any provision of this Law or any rule, 7 regulation, order, or condition lawfully imposed under 8 this Law has been willfully violated, in connection with 9 the business opportunity: 10 (A) by the person filing the registration; or 11 (B) by the seller, any partner, officer, or 12 director of the seller, any person occupying a 13 similar status or performing similar functions, or 14 any person directly or indirectly controlling or 15 controlled by the seller, but only if the person 16 filing the registration is directly or indirectly 17 controlled by or acting for the seller. 18 (3) The business opportunity registered or sought 19 to be registered is the subject of an administrative 20 order denying, suspending or revoking a registration or a 21 permanent or temporary injunction or final order of any 22 court of competent jurisdiction; but the Secretary of 23 State: 24 (A) may not institute a proceeding against an 25 effective registration under this paragraph more 26 than one year from the date of the order or 27 injunction relied on; and 28 (B) may not enter an order under this 29 paragraph on the basis of an order or injunction 30 entered under any other State Act unless that order 31 or injunction was based on facts which would 32 currently constitute a ground for an order under 33 this Section. 34 (4) The seller's enterprise or method of business, HB3944 Enrolled -70- LRB9111259STsb 1 or that of the business opportunity, includes or would 2 include activities which are illegal where performed. 3 (5) The business opportunity or the offering of a 4 business opportunity has worked or tended to work a fraud 5 upon purchasers or would so operate. 6 (6) There has been a failure to file any documents 7 or information required by Section 5-30 of this Law. 8 (7) The seller has failed to pay the proper filing 9 fee but the Secretary of State may enter only a denial 10 order under this paragraph and the Secretary of State 11 shall vacate any such order when the deficiency has been 12 corrected. 13 (8) The seller's literature or advertising is 14 misleading, incorrect, incomplete or deceptive. 15 (b) The Secretary of State may not institute a 16 proceeding under this Section against an effective 17 registration on the basis of a fact or transaction known to 18 the Secretary of State when the registration became effective 19 unless the proceeding is instituted within the next 30 days. 20 (c) The Secretary of State may by summary order postpone 21 or suspend the effectiveness of the registration pending 22 final determination of any proceeding under this Section. 23 Upon the entry of the order, the Secretary of State shall 24 promptly notify the seller that the order has been entered 25 and of the reasons therefor and that within 15 days after the 26 receipt of a written request the matter will be set down for 27 hearing. The written request must be made within 30 days of 28 the entry of the order. If no hearing is requested and none 29 is ordered by the Secretary of State, the order will remain 30 in effect until it is modified or vacated by the Secretary of 31 State. If a hearing is requested or ordered, the Secretary of 32 State, after notice of an opportunity for hearing to the 33 seller, may modify or vacate the order or extend it until 34 final determination. HB3944 Enrolled -71- LRB9111259STsb 1 (d) No summary order may be entered under any part of 2 this Section, except the first sentence of subsection (c) of 3 this Section, without appropriate prior notice to the seller, 4 opportunity for hearing, and written findings of fact and 5 conclusions of law. 6 (e) The Secretary of State may vacate or modify an order 7 issued under this Section if the Secretary of State finds 8 that the conditions which prompted its entry have changed or 9 that it is otherwise in the public interest to do so. 10 (f) Notwithstanding anything in this Act to the 11 contrary, the Secretary of State, after notice and 12 opportunity for hearing, may, at the Secretary of State's 13 discretion, enter into an agreed settlement, stipulation, or 14 consent order with a respondent in accordance with the 15 provisions of the Illinois Administrative Procedure Act. The 16 provisions of the agreed settlement, stipulation, or consent 17 order shall have the full force and effect of an order issued 18 by the Secretary of State. 19 (g) The action of the Secretary of State in issuing any 20 order under this Section shall be subject to judicial review 21 under the Administrative Review Law. 22 (Source: P.A. 90-70, eff. 7-8-97; 91-357, eff. 7-29-99.) HB3944 Enrolled -72- LRB9111259STsb 1 INDEX 2 Statutes amended in order of appearance 3 815 ILCS 5/2.5a from Ch. 121 1/2, par. 137.2-5a 4 815 ILCS 5/2.9 from Ch. 121 1/2, par. 137.2-9 5 815 ILCS 5/2.12b from Ch. 121 1/2, par. 137.2-12b 6 815 ILCS 5/3 from Ch. 121 1/2, par. 137.3 7 815 ILCS 5/4 from Ch. 121 1/2, par. 137.4 8 815 ILCS 5/8 from Ch. 121 1/2, par. 137.8 9 815 ILCS 5/11 from Ch. 121 1/2, par. 137.11 10 815 ILCS 5/12 from Ch. 121 1/2, par. 137.12 11 815 ILCS 175/15-15 12 815 ILCS 175/15-40 13 815 ILCS 175/15-80 14 815 ILCS 307/10-25 15 815 ILCS 307/10-60 16 815 ILCS 602/5-5.10 17 815 ILCS 602/5-10 18 815 ILCS 602/5-45