AN ACT RELATING TO THE SALE OF SECURITIES

It is enacted by the General Assembly as follows

SECTION 1. Sections 7-11-101, 7-11-202, 7-11-203, 7-11-204, 7-11-206, 7-11-208, 7-11-209, 7-11-215, 7-11-301, 7-11-404, 7-11-503, 7-11-505, 7-11-605, 7-11-708, and 7-11-801 of the General Laws in Chapter 7-11 entitled "RHODE ISLAND UNIFORM SECURITIES ACT" are hereby amended to read as follows:

7-11-101.Definitions. -- In this chapter:

(1) "Broker dealer" means a person engaged in the business of effecting transactions in securities for the account of others or for the person's own account. "Broker dealer" does not include:

(i) A sales representative;

(ii) An issuer, except when effecting transactions other than with respect to its own securities; and

(iii) Any other person as the director, by rule or order, designates.

(2) "Depository institution" means:

(i) A person which is organized, chartered, or holding an authorization certificate under the laws of a state or of the United States which authorizes the person to receive deposits, including a savings, share, certificate, or deposit account, and which is supervised and examined for the protection of depositors by an official or agency of a state or the United States;

(ii) A trust company or other institution that is authorized by federal or state law to exercise fiduciary powers of the type a national bank is permitted to exercise under the authority of the comptroller of the currency and is supervised and examined by an official or agency of a state or the United States; and

(iii) "Depository institution" does not include an insurance company or other organization primarily engaged in the insurance business, or a Morris plan bank, industrial loan company, or a similar bank or company unless its deposits are insured by a federal agency.

(3) "Director" means the director of the department of business regulation.

{ADD(3.1) "Federal covered adviser" means a person who is (i) registered under section 203 of the Investment Advisers Act of 1940; or (ii) is excluded from the definition of "investment adviser" under section 202(a)(11) of the Investment Advisers Act of 1940.

(3.2) "Federal covered security" means any security that is a covered security under section 18(b) of the Securities Act of 1933 or rules or regulations promulgated thereunder.ADD}

(4) "Filed" means the actual delivery of a document or application to the director or designee of the director or to the principal office of the director.

(5) "Financial or institutional investor" means any of the following, whether acting for itself or another in a fiduciary capacity:

(i) A depository institution;

(ii) An insurance company;

(iii) A separate account of an insurance company;

(iv) An investment company as defined in the Investment Company Act of 1940 [15 U.S.C. section 80a-1 et seq.];

(v) An employee pension, profit sharing or benefit plan if the plan has total assets in excess of five million dollars ($5,000,000), or if investment decisions are made by a plan fiduciary, as defined in the Employee Retirement Income Security Act of 1974 [codified primarily at 29 U.S.C. section 1001 et seq.], which is either a broker dealer registered under the Securities Exchange Act of 1934 [15 U.S.C. section 77b et seq.], an investment adviser registered or exempt from registration under the Investment Advisers Act of 1940 [15 U.S.C. section 80b-1 et seq.], a depository institution, or an insurance company; and

(vi) Any other institutional buyer.

(6) "Fraud", "deceit", and "defraud" are not limited to common law fraud or deceit.

(7) For purposes of section 7-11-401, "guaranteed" means guaranteed as to payment of all or substantially all of principal and interest or dividends.

(8) For purposes of section 7-11-401, "insured" means insured as to payment of all or substantially all of principal and interest or dividends.

(9) "Investment adviser" means a person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities. "Investment adviser" does not include:

(i) An investment adviser representative;

(ii) A trust company or other institution described in subsection 2(ii) above;

(iii) A lawyer, accountant, engineer, or teacher whose performance of investment advisory services is solely incidental to the practice of the person's profession;

(iv) A broker-dealer or its agent whose performance of investment advisory services is solely incidental to the conduct of business as a broker dealer and who receives no special compensation for the investment advisory services;

(v) A publisher of any bona fide newspaper, news column, newsletter, news magazine, or business or financial publication or service, whether communicated in hard copy form, or by electronic means, or otherwise, that does not consist of the rendering of advice on the basis of the specific investment situation of each client;

(vi) A person whose advice, analyses, or reports relate only to securities exempt under section 7-11-401(1); {DELandDEL}

(vii) Any person as the director, by rule or order, designates{DEL.DEL} {ADD ; and ADD}

{ADD (viii) A person who is a federal covered adviser. ADD}

(10) "Investment adviser representative" means {DELa person, other than an investment adviser, associated with an investment adviser whoDEL} {ADDany partner, officer, director of (or a person occupying a similar status or performing similar functions) or other individual, except clerical or ministerial personnel, who is employed by or associated with an investment adviser that is registered or required to be registered under this chapter or who has a place of business located in this state and is employed by or associated with a federal covered advisor; and who does any of the followingADD}:

(1) Makes any recommendations or otherwise renders advice regarding securities {DELto clientsDEL};

(2) Manages accounts or portfolios of clients;

(3) Determines which recommendation or advice regarding securities should be given;

(4) Solicits, offers, or negotiates for the sale of or sells investment advisory services; or

(5) Supervises employees who perform any of the foregoing.

(11)(i) Except as provided in subdivisions (11)(ii), (11)(iii), or (11)(iv), "issuer" means a person who issues or proposes to issue a security.

(ii) The "issuer" of a collateral trust certificate, voting trust certificate, certificate of deposit for a security, or share in an investment company without a board of directors or persons performing similar functions, is a person performing the acts and assuming the duties of depositor or manager pursuant to the trust or other agreement or instrument under which the security is issued.

(iii) The "issuer" of an equipment trust certificate, including a conditional sales contract or similar security serving the same purpose, is the person to whom the equipment or property is or is to be leased or conditionally sold.

(iv) The "issuer" of a fractional undivided interest to an oil, gas, or other mineral lease or in payments out of production under a lease, right, or royalty, is the owner of an interest in the lease or in payments out of production under a lease, right, or royalty, whether whole or fractional, who creates fractional interest for the purpose of sale.

(12) "Nonissuer transaction" means a transaction not directly or indirectly for the benefit of the issuer.

(13) "Person" means a natural person, corporation, business trust, estate, trust, partnership, association, joint venture, government in its private or public capacity, governmental subdivision or agency, or any other legal or commercial entity.

(14) "Person associated with" a named party or parties or "associated person of" a named party or parties means any partner, officer, director, or branch manager of the named party or parties (or any person occupying a similar status or performing similar functions), any person directly or indirectly controlling, controlled by, or under common control with the named party or parties or any employee of the named party or parties, except that any person so associated whose functions are solely clerical or ministerial shall not be included in the meaning of the term for purposes of this chapter.

(15) "Price amendment" means the amendment to a registration statement filed under the Securities Act of 1933 [15 U.S.C. sections 77a et seq.], or, if no amendment is filed, the prospectus or prospectus supplement filed under the Securities Act of 1933 [15 U. S.C. sections 77a et seq.], which includes a statement of the offering price, underwriting and selling discounts or commissions, amounts of proceeds, conversion rates, call prices, and other matters dependent upon the offering price.

(16) "Promoter" includes:

(i) A person who, acting alone or in concert with one or more other persons, takes the entrepreneurial initiative in founding or organizing the business or enterprise of an issuer;

(ii) An officer or director owning securities of an issuer or a person who owns, beneficially or of record, ten percent (10%) or more of a class of securities of the issuer if the officer, director or person acquire any of those securities in a transaction within three (3) years before the filing by the issuer of a registration statement under this chapter and the transaction does not possess the indicia of arms length bargaining; and

(iii) A member of the immediate family of a person within subparagraph (i) or (ii) if the family member receives securities of the issuer from that person in a transaction within three (3) years before the filing by the issuer of a registration statement under this chapter and the transaction does not possess the indicia of arms length bargaining.

(17)(i) "Sale" or "sell" includes every contract of sale, contract to sell, or other disposition, of a security or interest in a security for value.

(ii) "Offer to sell" includes every attempt to offer to dispose of, or solicitation of an offer to purchase, a security or interest in a security for value.

(iii) "Offer to purchase" includes every attempt or offer to obtain, or solicitation of an offer to sell, a security or interest in a security for value, but the term does not include a transaction that is subject to section 14(d) of the Securities Exchange Act of 1934 [15 U. S. C. section 78n(d)].

(iv) A security given or delivered with, or as a bonus on account of, a purchase of securities or other item is considered to constitute part of the subject of the purchase and to have been offered and sold for value.

(v) A gift of assessable stock is deemed to involve an offer and sale.

(vi) A sale or offer of a warrant or right to purchase or subscribe to another security of the same or another issuer, or a sale or offer of a security that gives the holder a present or future right or privilege to convert into another security of the same or another issuer, is deemed to include an offer of the other security.

(vii) The terms defined in this paragraph do not include the creation of a security interest or a loan; a stock dividend, whether the corporation distributing the dividend, is the issuer of the stock or not, if nothing of value is given by stockholders for the dividend other than the surrender of a right to a cash or property dividend and each stockholder may elect to take the dividend in cash, property, or stock; or an act incident to a judicially approved reorganization in which a security is issued in exchange for one or more outstanding securities, claims, or property interests, or partly in exchange and partly for cash.

(18) "Sales representative" means a person, other than a broker dealer, associated with a broker dealer or issuer in effecting or attempting to effect purchases or sales of securities.

(19) "Securities Act of 1933" [15 U.S.C. section 77a et seq.], "Securities Exchange Act of 1934" [15 U.S.C. section 77b et seq.], "Public Utility Holding Company Act of 1935" [15 U.S.C. section 79 et seq.], "Investment Company Act of 1940" [15 U.S.C. sections 80a-1 -- 80a-64], "Investment Advisers Act of 1940" [15 U.S.C. section 80b-1 et seq.], "Employee Retirement Income Security Act of 1974" [codified primarily at 29 U.S.C. section 1001 et seq.], "National Housing Act" [codified primarily at 12 U.S.C. section 1701 et seq.] and "Commodity Exchange Act" [7 U.S.C. sections 2-26] mean the federal statutes of those names as amended before or after July 6. 1990.

(20) Unless the context requires otherwise, "security" means a note; stock; treasury stock; bond; debenture; evidence of indebtedness; certificate of interest or participation in a profitsharing agreement; a limited partnership interest; collateral trust certificate; preorganization certificate or subscription; transferable share; investment contract; voting trust certificate; certificate of deposit for a security; fractional undivided interest in an oil, gas, or other mineral lease or in payments out of production under a lease, right, or royalty; a put, call, straddle, or option entered into on a national securities exchange relating to foreign currency; a put, call, straddle or option on a security, certificate of deposit, or group or index of securities, including an interest in or based on the value or any of the foregoing; or, in general, an interest or instrument commonly known as a "security", or a certificate of interest or participation in, temporary or interim certificate for, receipt for, whole or partial guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. The term does not include:

(i) An insurance or endowment policy or annuity contract under which an insurance company promises to pay a fixed sum of money either in a lump sum or periodically for life or some other specified period; or

(ii) An interest in a contributory or noncontributory pension or welfare plan subject to the employee retirement income security act of 1974.

(21) "Self regulatory organization" means a national securities exchange registered under section 7 of the Securities Exchange Act of 1934 [15 U.S.C. section 78g], a national securities association of brokers and dealers registered under section 15A of the Securities Exchange Act of 1934 [15 U.S.C. section 78o-3], a clearing agency registered under section 17A of the Securities Exchange Act of 1934 [15 U.S.C. section 78k-1], or the municipal securities rule making board established under section 15B(b)(1) of the Securities Exchange Act of 1934 [15 U.S.C. 78o-4(b)(1)].

(22) "State" means a state, commonwealth, territory, or possession of the United States, including each of the District of Columbia and the Commonwealth of Puerto Rico.

(23) "Willfully" means intentionally committing the act which constitutes a violation; there being no requirement that the actor also be aware that he or she is violating any provision of this chapter or any rule or order hereunder.

7-11-202.Exempt broker dealers and sales representatives. -- (a) The following broker dealers are exempt from the licensing requirements of section 7-11-201:

(1) A broker dealer who either is registered or, except as provided in subsection (b), is not required to be registered under the Securities Exchange Act of 1934 [15 U.S.C. section 77b et seq.] and who has no place of business in this state if:

(i) The transactions effected by the broker dealer in this state are exclusively with the issuer of the securities involved in the transactions, other broker dealers licensed or exempt under this chapter, and financial or institutional investors; {DELorDEL}

(ii) The broker dealer is licensed under the securities act of a state in which the broker dealer maintains a place of business and the broker dealer offers and sells in this state to a person who is an existing customer of the broker dealer and whose principal place of residence is not in this state; and

(2) Other broker dealers the director, by rule or order, exempts.

(b) The exemption provided in subsection (a)(1)(i) is not available to a broker dealer who deals solely in governmental securities and is not registered under the Securities Exchange Act of 1934 [15 U.S.C. section 77b et seq.] unless the broker dealer is subject to supervision as a dealer in government securities by the Federal Reserve Board.

(c) The following sales representatives are exempt from the licensing requirements of section 7-11-201:

(i) A sales representative acting for a broker dealer exempt under subsection (a);

(ii) A sales representative acting for an issuer in effecting transactions in a security exempted by section 7-11-401(1) -- (4) and (10) -- (12);

(iii) A sales representative acting for an issuer effecting offers or sales of securities in transactions exempted by section 7-11-402;

(iv) A sales representative acting for an issuer effecting transactions with employees, partners, officers, or directors of the issuer, a parent or a wholly owned subsidiary of the issuer, if no commission or other similar compensation is paid or given directly or indirectly to the sales representative for soliciting an employee, partner, officer, or director in this state; {DELandDEL}

{ADD(v) A sales representative acting for an issuer effecting offers or sales of securities that are covered securities under section 18(b)(3) or section 18(b)(4)(D) of the securities act of 1933, provided that no commission or other remuneration is paid or given directly or indirectly for soliciting any person in this state;

(vi) A sales representative whose transactions in this state are limited to only those transactions set forth in section 15(h)(2) of the securities exchange act of 1934;ADD}and

{DEL(v)DEL} {ADD(vii) ADD}Other sales representatives the director, by rule or order, exempts.

7-11-203.Investment adviser and investment adviser representative licensing. -- (a) No person may transact business in this state as an investment adviser or an investment adviser representative unless licensed or exempt from licensing under this chapter.

(b) No investment adviser licensed under this chapter may employ a person as an investment adviser representative in this state unless the investment adviser representative is licensed or exempt from licensing under this chapter.

(c) No investment adviser may employ, directly or indirectly, a person to engage in any activity in this state contrary to a suspension or bar from association with a broker dealer or investment adviser imposed against that person by the director. {ADDA federal covered adviser may not employ, directly or indirectly, a person having a place of business in this state to engage in any activity in this state if such person is currently subject to a suspension or bar from association with a broker dealer, or investment adviser against that person by the director.ADD} No investment adviser {ADDor federal covered adviserADD} violates this subsection unless the investment adviser {ADDor federal covered adviserADD} knows or in the exercise of reasonable care should know of the suspension or bar. Upon request from an investment adviser {ADDor a federal covered adviserADD} and for good cause shown, the director, by order, may waive the prohibition of this subsection with respect to a person suspended or barred.

7-11-204.Exempt investment adviser and investment adviser representatives. -- The following investment advisers and investment adviser representatives are exempt from the licensing requirements of section 7-11-203:

(1) An investment adviser who is {DELregistered or isDEL} not required to be registered as an investment adviser under the Investment Advisers Act of 1940 [15 U.S.C. section 80b-1 et seq.] if:

(i) Its only clients in this state are other investment advisers, {ADDfederal covered advisers,ADD} broker dealers, {DELorDEL} financial or institutional investors; {DELorDEL}

(ii) The investment adviser has no place of business in this state and the investment adviser directs business communications in this state to a person who is an existing client of the investment adviser and whose principal place of residence is not in this state; {ADDorADD}

{ADD(iii) The investment adviser has no place of business in this state and the investment adviser, during the preceding twelve (12) month period, has had not more than five (5) clients, other than those specified in subparagraph (i), who are residents of this state.ADD}

(2) An investment adviser representative if the investment adviser with whom it is associated is exempt under subsection (1) of this section; and

(3) Other investment advisers or investment adviser representatives the director, by rule or order, exempts.

7-11-206.{DELFeesDEL}. --{ADDLicensing and notice fees; and filing requirements for federal covered advisers. --ADD} (a) {DELAn applicantDEL} {ADDA federal covered adviser or an applicantADD} for licensing shall pay an annual {DELlicensingDEL} fee as follows:

(1) Broker dealer two hundred and fifty dollars ($250) and for each branch office one hundred dollars ($100);

(2) Sales representative fifty dollars ($50.00);

(3) Investment adviser two hundred and fifty dollars ($250); and

(4) Investment adviser representative fifty dollars ($50.00).

{ADD(5) Federal covered adviser two hundred and fifty dollars ($250).ADD}

{ADD(b) Except with respect to federal covered advisers whose only clients are those described in subsection 204(1)(i) of this chapter, a federal covered adviser shall file such documents filed with the U.S. Securities and Exchange Commission with the director, as the director may by rule or order require, together with such notice fee and consent to service of process as the director, by rule or order, may require. The notice filings under this subsection shall expire annually on December 31, unless renewed.ADD}

{ADD(c) A notice filing under this section shall be effective from receipt until the end of the calendar year. A notice filing may be renewed by filing such documents as have been filed with the U.S. Securities and Exchange Commission as required by the director along with a renewal fee of two hundred fifty dollars ($250).ADD}

{ADD(d) A federal covered adviser may terminate a notice filing upon providing the director notice of such termination, which shall be effective upon receipt by the director.ADD}

{ADD(e) Notwithstanding the provisions of this section, until October 11, 1999, the director may require the registration as an investment adviser of any federal covered adviser who has failed to promptly pay the fees required by this section after written notification from the director of the non-payment or underpayment of such fees. A federal covered adviser shall be considered to have promptly paid such fees if they are remitted to the director within fifteen (15) days following the federal covered adviser's receipt of written notice from the director.ADD}

{DEL(b)DEL} {ADD(f)ADD} For purposes of this section, "branch office" means an office of a broker dealer in this state, other than the principal office in this state of the broker dealer, from which three (3) or more sales representatives transact business.

{DEL(c)DEL} {ADD(g)ADD} If an application is denied or withdrawn or the license is revoked, suspended, or withdrawn, the director is not required to refund the fee paid.

{ADD(h) The director may issue a stop order suspending the activities of a federal covered adviser in this state if the director reasonably believes there has been a violation of the provisions of this section.ADD}

7-11-208.Licensing. -- (a) Unless a proceeding under section 7-11-212 is instituted or the applicant is notified that the application is incomplete, the license of a broker dealer, sales representative, investment adviser, or investment adviser representative becomes effective thirty (30) days after the later of the date an application for licensing is filed and is completed or the date an amendment to an application is filed and is complete, in either case only if all examination requirements imposed under section 7-11-207 are satisfied. An application is complete when the applicant has furnished information responsive to each applicable item of the application. The director, by order, may authorize an earlier effective date of licensing.

(b) The license of a broker dealer, sales representative, investment adviser, or investment adviser representative is effective until terminated by expiration, revocation, or withdrawal.

(c) The license of a sales representative is only effective with respect to transactions effected on behalf of the broker dealer or issuer for whom the sales representative is licensed.

(d) No person may act at any one time as a sales representative for more than one broker dealer or for more than one issuer, unless the broker dealers or issuers for whom the sales representatives acts are affiliated by direct or indirect common control or the director, by rule or order, authorizes multiple licenses.

(e) If a person licensed as a sales representative terminates association with a broker dealer or issuer, or terminates activities that make the person a sales representative, the sales representative and the broker dealer or issuer on whose behalf the sales representative was acting shall promptly notify the director.

(f) The license of an investment adviser representative is only effective with respect to transactions effected as an associated person of the investment adviser {ADDor federal covered adviserADD} as to whom the investment adviser representative is licensed.

(g) No person may act at any one (1) time as an investment adviser {ADDor federal covered adviserADD} representative for more than one (1) investment adviser, unless the investment advisers {ADDor federal covered advisersADD} for whom the investment adviser representative acts are affiliated by direct or indirect common control or the director, by rule or order, authorizes multiple licenses.

(h) If a person licensed as an investment adviser representative terminates association with an investment adviser or terminates activities that make the person an investment adviser representative, the investment adviser representative and the investment adviser on whose behalf the investment adviser representative was acting shall promptly notify the director.

(i) The director, by rule, may authorize one or more special classifications of licenses as a broker dealer, sales representative, investment adviser, or investment adviser representative to be issued to applicants subject to limitations and conditions on the nature of the activities that may be conducted by persons so licensed.

7-11-209.Post licensing requirements. -- (a)(1) The director, by rule, may require a licensed broker dealer who is not registered under the Securities Exchange Act of 1934 [15 U.S.C. section 77b et seq.] to maintain minimum net capital and a prescribed ratio between net capital and aggregate indebtedness {ADDwhich may vary with the type or class of broker dealerADD}. {DELThe minimum net capital and net capital-to-aggregate indebtedness ratio may vary with type or class of broker dealer.DEL}

(2) The director, by rule, may require a licensed investment adviser who is not registered under the Investment Advisers Act of 1940 [15 U.S.C. section 80b-1 et seq.] to maintain a minimum net worth {ADDsubject to the limitations set forth in section 222 of the Investment Advisers Act of 1940ADD}.

(3) If a licensed broker dealer or investment adviser knows, or has reasonable cause to know, that a requirement imposed on it under this subsection is not being met, the broker dealer or investment adviser shall promptly notify the director of its current financial condition.

(b) The director, by rule, may require the furnishing of a fidelity bond from a broker dealer who is not registered under the Securities Exchange Act of 1934 [15 U.S.C. section 77b et seq.].

(c)(1) A licensed broker dealer or investment adviser shall file with the director the financial and other information the director determines, by rule or order, to be necessary.

(2) A licensed broker dealer required to file financial reports under the Securities Exchange Act of 1934 [15 U.S.C. section 77b et seq.] may satisfy periodic financial report requirements of this subsection by filing with the director a copy of the financial reports filed under the Securities Exchange Act of 1934 [15 U.S.C. section 77b et seq.].

(3) A licensed investment adviser {DELrequired to file financial reports under the Investment Advisers Act of 1940 [15 U.S.C. section 80b-1 et seq.] may satisfy periodic financial report requirements of this subsection by filing with the director a copy of the financial reports filed under the Investment Advisers Act of 1940 [15 U.S.C. section 80b-1 et seq.].DEL} {ADDshall file with the director such financial reports, subject to the limitations of section 222 of the Investment Advisers Act of 1940 as the director may by rule or order require.ADD}

(d)(1) {DELA licensed broker dealer, sales representative, investment adviser, or investment adviser representative shall make and maintain the records the director, by rule, determines are necessary.DEL} {ADDA licensed broker dealer or sales representative shall comply with the recordkeeping requirements of the Securities Exchange Act of 1934. A licensed investment adviser subject to the limitations of section 222 of the Investment Advisers Act of 1940, shall maintain records the director, by rule or by order requires.ADD}

{DEL(2) Compliance with the recordkeeping requirements of the Securities Exchange Act of 1934 [15 U.S.C. section 77b et seq.] by a broker dealer or the Investment Advisers Act of 1940 [15 U.S.C. section 80b-1 et seq.] by an investment adviser satisfies the requirements of subparagraph (1).

(3)DEL {ADD(2)ADD} Required records may be maintained in {DELcomputer or microfilm format or any otherDEL} {ADDanyADD} form of data storage if the records are readily accessible to the director.

{DEL(4)DEL}{ADD(3)ADD} Required records must be preserved for {DELfive (5) years unless the director, by rule, specifies a different period for a particular type or class of recordsDEL} {ADDsuch period as the director by rule or order may require, subject to the limitations of section 15 of the Securities Exchange Act of 1934 and section 222 of the Investment Advisers Act of 1940 for broker dealers and investment advisers, respectivelyADD}.

(e) If the information contained in a document filed with the director as part of the application for licensing or under this section, except information the director, by rule or order, excludes, is or becomes inaccurate or incomplete in a material respect, the licensed person shall promptly file correcting information, unless notification of termination has been given under section 7-11-208(e).

7-11-215.Custody of clients' securities and funds. -- (a) Unless prohibited by rule or order of the director, an investment adviser registered under {DELthe Investment Advisers Act of 1940 [15 U.S.C. section 80b-1 et seq.]DEL} {ADDthis chapter ADD}may take or retain custody of securities or funds of a client.

{DEL(b) To the extent permitted by rule or order of the director, an investment adviser exempt from registration under the Investment Advisers Act of 1940 [15 U.S.C. section 80b-1 et seq.], but licensed as an investment adviser under this chapter, may take or retain custody of securities or funds of a client. DEL}

7-11-301.Registration requirement. A person may not offer to sell or sell a security in this state unless the security{ADD:ADD}

{ADD(1)ADD} is registered under this chapter {DELorDEL} {ADD;ADD}

{ADD(2)ADD} the security or transaction is exempt under this chapter{DEL.DEL} {ADD; orADD}

{ADD(3) it is a federal covered security.ADD}

7-11-404.Filing of sales and advertising literature. -- The director, by rule or order, may require the filing of a prospectus, pamphlet, circular, form letter, advertisement, or other sales literature or advertising communication addressed or intended for distribution to prospective investors, including clients or prospective clients of an investment adviser{DEL,DEL} {ADDor federal covered adviser,ADD} unless the security or transaction is exempt under section 7-11-401 or 7-11-402 or {DELthe investment adviser is exempt under section 7-11-204.DEL} {ADDis a federal covered security.ADD}

7-11-503.{DELProhibited transactions by investment advisers and investment adviser representatives. --DEL} {ADDProhibited transactions by investment advisers, federal covered advisers. --ADD} An investment adviser {DELor an investment adviser representativeDEL} {ADD, a federal covered adviser, or a person who represents an investment adviser or a federal covered adviserADD} may not, directly or indirectly:

(1) Employ a device, scheme, or artifice to defraud a client;

(2) Engage in an act, practice, or course of business that operates or would operate as a fraud or deceit upon a client; or

(3) Act as principal for his or her own account, knowingly sell any security to or purchase any security from a client, or acting as broker for a person other than the client, knowingly effect any sale or purchase of any security for the account of the client, without disclosing to the client in writing before the completion of the transaction the capacity in which he or she is acting and obtaining the consent of the client to the transaction. The prohibitions of this paragraph shall not apply to {ADDa federal covered adviser or toADD} any transaction with a customer of a broker dealer if the broker dealer is not acting as an investment adviser in relation to the transaction.

7-11-505.Unlawful representations concerning licensing, registration, or exemption. -- (a) Neither the fact that {ADDa notice filing orADD} an application for licensing or a registration statement has been filed under this chapter nor the fact that a person is licensed or a security is registered under this chapter constitutes a finding by the director that a document filed under this chapter is true, complete, and not misleading. Neither of those facts nor the fact that an exemption or exception is available for a security or a transaction means that the director has passed upon the merits or qualifications of, or recommended or given approval to, a person, security, or transaction.

(b) No person may make, or cause to be made, to a purchaser, customer, or client a representation inconsistent with subsection (a) of this section.

7-11-605.Civil liability. -- (a) A person who offers or sells a security in violation of sections {ADD7-11-301(1) or (2),ADD} 7-11-305(k), 7-11-501, 7-11-503, or 7-11-505(b) is liable to the purchaser of the security from that person. Upon tender of the security, the purchaser may recover the consideration paid for the security and interest at the legal rate of this state from the date of payment, costs, and reasonable attorney's fees as determined by the court, less the amount of income received on the security. Tender requires only notice of willingness to exchange the security for the amount specified. If that purchaser no longer owns the security, the purchaser may recover damages. Damages are the amount that would be recoverable upon a tender less the value of the security when the purchaser disposed of it, plus interest at the legal rate of this state from the date of disposition of the security, costs, and reasonable attorney's fees as determined by the court.

(b) A person who offers or sells a security in violation of section 7-11-501 or 7-11-503 is not liable under subsection (a) if:

(1) The purchaser knew of the untrue statement of a material fact or omission of a statement of a material fact; or

(2) The seller did not know and in the exercise of reasonable care could not have known of the untrue statement or misleading omission.

(c) A person who willfully participates in an act or transaction in violation of section 7-11-502 is liable to a person who purchases or sells a security, other than a security traded on a national securities exchange or quoted on a national automated quotation system administered by a self regulatory organization, at a price that was affected by the act or transaction for the damages sustained as a result of the act or transaction. Damages are the amount that would be recoverable upon a tender less the value of the security when the purchaser or seller disposed of it, plus interest at the legal rate of this state from the date of disposition of the security, costs, and reasonable attorney's fees as determined by the court.

(d) A person who directly or indirectly controls another person who is liable under subsection (a) or (c) of this section, a partner, officer, or director of the person liable, a person occupying a similar status or performing similar functions, an employee of the person liable if the employee materially aids in the act, omission or transaction constituting the violation, and a broker dealer or sales representative who materially aids in the act, omission, or transaction constituting the violation, are also liable jointly and severally with and to the same extent as the other person, but it is a defense that the person did not know, and in the exercise of reasonable care could not have known, of the existence of the facts by which the liability is alleged to exist. With respect to a person who, directly or indirectly, controls another person who is liable under subsection (c) of this section, it is also a defense that the controlling person acted in good faith and did not, directly or indirectly, induce the act, omission, or transaction constituting the violation. Contribution among the several persons liable is the same as in cases arising out of breach of contract.

7-11-708.Consent to service of process. -- (a) An applicant for licensing or registration under this chapter{ADD, a federal covered adviserADD} or an issuer who proposes to offer securities in this state through a person acting on an agency basis in the commonlaw sense shall file with the director, in the form the director, by rule, prescribes, an irrevocable consent appointing the director the person's attorney to receive service of lawful process in a noncriminal proceeding against the person, a successor or personal representative which arises under this chapter or a rule or order of the director under this chapter after the consent is filed, with the same force and validity as if served personally on the person filing the consent.

(b) A person who has filed a consent complying with subsection (a) of this section in connection with a previous application for licensing or registration need not file an additional consent.

(c) If a person, including a nonresident of this state, engages in conduct prohibited or made actionable by this chapter or a rule or order of the director under this chapter and the person has not filed a consent to service of process under subsection (a) of this section, the engaging in the conduct constitutes the appointment of the director as the person's attorney to receive service of lawful process in a noncriminal proceeding against the person, a successor, or personal representative which grows out of the conduct.

(d) A consent to service filed on behalf of an issuer organized or domiciled under the laws of a foreign country whose securities are being offered in this state otherwise than by or through underwriters, must be accompanied by an opinion of counsel stating that judgments of United States courts will be recognized by the courts of the country in which the issuer was organized or is domiciled.

(e) Service under subsection (a) or (c) of this section may be made by leaving a copy of the process in the office of the director, but it is not effective unless:

(1) the plaintiff, who may be the director, promptly sends notice of the service and a copy of the process by registered or certified mail, return receipt requested, to the defendant or respondent at the address set forth in the consent to service of process or, if no consent to service of process has been filed, at the last known address or takes other steps which are reasonably calculated to give actual notice; and

(2) the plaintiff files an affidavit of compliance with this subsection in the proceeding on or before the return day of the process, if any, or within such further time as the court, or the director in a proceeding before the director allows.

(f) Service as provided in subsection (e) may be used in a proceeding before the director or by the director in a proceeding in which the director is the moving party.

(g) If the process is served under subsection (e) of this section, the court, or the director in a proceeding before the director, shall order continuances as may be necessary to afford the defendant or respondent reasonable opportunity to defend.

7-11-801.Scope of chapter. -- (a) Sections 7-11-201, 7-11-301, {ADD7-11-307,ADD} 7-11-501, 7-11-502, 7-11-505, and 7-11-605 apply to a person who {DELsells orDEL} offers to sell a security if:

(1) An offer to sell is made in this state; or

(2) An offer to purchase is made and accepted in this state.

(b) Sections 7-11-201, {ADD7-11-307,ADD} 7-11-501, 7-11-502, and 7-11-505 apply to a person who purchases or offers to purchase a security if:

(1) An offer to purchase is made in this state; or

(2) An offer to sell is made and accepted in this state.

(c) For the purpose of this section, an offer to sell or to purchase is made in this state, whether or not either person is present in this state, if the offer:

(1) Originates in this state; or

(2) Is directed by the offeror to a destination in this state and received where it is directed, or at a post office in this state if the offer is mailed.

(d) For the purpose of this section, an offer to purchase or to sell is accepted in this state if acceptance:

(1) Is communicated to the offeror in this state; and

(2) Has not previously been communicated to the offeror, orally or in writing, outside this state. Acceptance is communicated to the offeror in this state, whether or not either person is present in this state, if the offeree directs it to the offeror in this state reasonably believing the offeror is in this state and it is received where it is directed, or at a post office in this state if an acceptance is mailed.

(e) For the purpose of subsections (a) through (d) of this section, an offer to sell or to purchase made in a newspaper or other publication of general, regular, and paid circulation is not made in this state if the publication:

(1) Is not published in this state; or

(2) Is published in this state, but has had more than two-thirds (2/3) of its circulation outside this state during the past twelve (12) months.

(f) For the purpose of subsection (e) of this section, if a publication is published in editions, each edition is a separate publication except for material common to all editions.

(g) For the purpose of subsections (a) through (d) of this section, an offer to sell or to purchase made in a radio or television program or other electronic communication received in this state which originates outside this state is not made in this state.

(h) For the purposes of subsection (g) of this section, a radio or television program or other electronic communication is considered as having originated in this state if either the broadcast studio or the originating source of transmission is located in this state; unless:

(1) The program or communication is syndicated and distributed from outside this state for redistribution to the general public in this state;

(2) The program or communication is supplied by a radio, television, or other electronic network with the electronic signal originating from outside this state for redistribution to the general public in this state;

(3) The program or communication is an electronic signal that originates outside this state and is captured for redistribution to the general public in this state by a community antenna or cable, radio, cable television, or other electronic system; or

(4) The program or communication consists of an electronic signal that originates in this state, but which is not intended for redistribution to the general public in this state.

SECTION 2. Chapter 7-11 of the General Laws entitled "RHODE ISLAND UNIFORM SECURITIES ACT" is hereby amended by adding thereto the following section:

{ADD7-11-307. Federal covered securities. --ADD} {ADD(a) The director, by rule or order, may require the filing of any or all of the following documents with respect to a covered security under section 18(b)(2) of the Securities Act of 1933:ADD}

{ADD(1) Prior to the initial offer of such federal covered security in this state, all documents that are part of a current federal registration statement filed with the U.S. Securities and Exchange Commission under the Securities Act of 1933 or, in lieu of filing such registration statement, a notice as prescribed by the director by rule or otherwise, together with a consent to service of process signed by the issuer and with a nonrefundable fee of one-tenth of one percent (0.1%) of the maximum aggregate offering price at which the federal covered securities are to be offered in this state, but not less than three hundred dollars ($300) or more than one thousand dollars ($1,000).ADD}

{ADD(2) An open end management company, a face amount certificate company, or a unit investment trust, as defined in the Investment Company Act of 1940 [15 U.S.C. section 80a-1], may file a notice for an indefinite amount of securities. The issuer, at the time of filing, shall pay a nonrefundable fee of three hundred dollars ($300) and within sixty (60) days after the issuer's fiscal year, during which its federal registration statement is effective, pay a nonrefundable fee of three hundred dollars ($300) or file a report on a form the director, by rule, adopts, specifying its sale of securities to persons in this state during the fiscal year and pay a fee of one-tenth of one percent (0.1%) of the aggregate sales price of the securities sold to persons in this state, but the latter fee shall not be less than three hundred dollars ($300) or more than one thousand dollars ($1,000).ADD}

{ADD(3) After the initial offer of such federal covered security in this state, all documents that are part of an amendment to a current federal registration statement filed with the U.S. Securities and Exchange Commission under the Securities Act of 1933, shall be filed concurrently with the director.ADD}

{ADD(4) Unless otherwise extended by the director, an initial notice filing under this subsection shall be effective for one year commencing upon the date the notice or registration statement, as applicable, is received by the director unless a later date is indicated by the issuer. A notice filing may be renewed by filing a renewal notice as prescribed by the director and paying a renewal fee of one-tenth of one percent (0.1%) of the aggregate sales price of the securities sold to persons in this state, but the latter fee shall not be less than three hundred dollars ($300) or more than one thousand dollars ($1,000).ADD}

{ADD(b) With respect to any security that is a covered security under section 18(b)(4)(D) of the Securities Act of 1933, the director, by rule or otherwise, may require the issuer to file a notice on SEC Form D and a consent to service of process signed by the issuer no later than fifteen (15) days after the first sale of such federal covered security in this state, together with Form U-2, Form D and a nonrefundable fee of three hundred dollars ($300).ADD}

{ADD(c) The director, by rule or otherwise may require the filing of any document filed with the U.S. Securities and Exchange Commission under the Securities Act of 1933, with respect to a covered security under section 18(b)(3) or (4) of the Securities Act of 1933, together with a notice and fees as defined in subparagraph (a)(1).ADD}

{ADD(d) The director may issue a stop order suspending the offer and sale of a federal covered security, except a covered security under section 18(b)(1) of the Securities Act of 1933, if the director finds that (1) the order is in the public interest and (2) there is a failure to comply with any condition established under this section.ADD}

{ADD(e) Notwithstanding the provisions of this section, until October 11, 1999, the director may require the registration of any federal covered security for which the fees required by this section have not been paid promptly following written notification from the director to the issuer of the nonpayment or underpayment of such fees. An issuer shall be considered to have promptly paid such fees if they are remitted to the director within fifteen (15) days following such person's receipt of written notification from the director.ADD}

{ADD(f) The director, by rule or order, may waive any or all of the provisions of this section.ADD}

SECTION 3. This act shall take effect upon passage.

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