R331-5. Rule Governing Sale of Securities by Persons Issuing Securities, Who Are Under the Jurisdiction of the Department of Financial Institutions, R331. Financial Institutions, Administration, Utah Administrative Code

Utah Administrative Code (Current through November 1, 2019)

R331. Financial Institutions, Administration

R331-5. Rule Governing Sale of Securities by Persons Issuing Securities, Who Are Under the Jurisdiction of the Department of Financial Institutions

R331-5-1. Authority, Scope and Purpose

Latest version.

(1) This rule is issued pursuant to Sections 7-1-301(13) and 7-1-503.

(2) This rule governs the issuance, offer, offer to sell, offer for sale or sale of any security issued by a person or institution under the jurisdiction of the Department of Financial Institutions.

(3) The rule establishes uniform rules for securities offerings applicable to all persons and institutions subject to the jurisdiction of the department and minimum standards of disclosure to protect the public interest.

R331-5-2. Definitions

Latest version.

(1) "Issuer" means any person under the jurisdiction of the department who issues or proposes to issue any security.

(2) "Offer, offer to sell, offer for sale or sale" means:

(a) every attempt or offer to dispose of, or solicitation of an offer to buy;

(b) every contract of sale of, contract to sell, or disposition of a security or interest in a security for value;

(c) every sale or offer of a warrant or right to purchase or subscribe to another security of the same issuer or an affiliate of the issuer, as well as every sale or offer of a security which gives the holder a present or future right or privilege to convert into another security of the same issuer or an affiliate of the issuer.

(3) "Restricted Securities" means:

(a) securities that are acquired directly or indirectly from the issuer, or from an affiliate of the issuer, in a transaction or chain of transactions not involving any public offering;

(b) securities acquired from the issuer that are subject to the resale limitations of SEC Regulation D, Rules Governing the Limited Offer and Sale of Securities Without Registration Under the Securities Act of 1933, 17 CFR 230.501-508 (1993), or securities issued pursuant to Utah Division of Securities Rule R164-14-2n, Uniform Limited Offering Exemption (1994);

(c) securities that are subject to the resale limitations of SEC Regulation D, Rules Governing the Limited Offer and Sale of Securities Without Registration Under the Securities Act of 1933, 17 CFR 230.501-508 (1993) or Utah Division of Securities Rule R164-14-2n (1994) and are acquired in a transaction or chain of transactions not involving any public offering.

(4) "SEC" means the United States Securities and Exchange Commission.

(5) "Security" means any note; stock; treasury stock; bond; debenture; evidence of indebtedness; certificate of interest or participation in any profit-sharing agreement; collateral-trust certificate; pre-organization certificate or subscription; transferable share; investment contract; voting-trust certificate; certificate of deposit for a security; or, in general, any interest or instrument commonly known as a "security," or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. The word "security" does not include:

(a) Certificates of deposit or similar instruments issued by a bank, savings and loan association, credit union, or industrial loan corporation authorized or approved by the commissioner;

(b) A loan participation, letter of credit, or other form of indebtedness incurred in the ordinary course of business by a bank, savings and loan association, credit union, or industrial loan corporation; or

(c) Promissory notes or other evidences of indebtedness, and the security therefor, leases of personal property, contracts to sell real or personal property, or other loans or investments sold by a depository institution in the secondary market.

R331-5-3. Registration with the Department

Latest version.

(1) Any person under the jurisdiction of the department who issues, offers, offers to sell, offers for sale or sells any security, the issuer of which is also a person under the jurisdiction of the department, after the effective date of this rule, shall register with the department on forms as the department may require.

(2) No person may issue, offer, offer to sell, offer for sale or sell any security of which the issuer is also a person under the jurisdiction of the department, unless and until the department has provided notice to the issuer that the securities have been registered with the department and an offering circular containing, at a minimum, the information required in Rule R331-5-4, has been approved by the department.

R331-5-4. Offering Circular Requirements

Latest version.

(1) General

No person subject to the jurisdiction of the department shall issue, offer, offer to sell, offer for sale or sell, directly or indirectly, any security issued by it unless the offer or sale is made through the use of an offering circular which has been filed and declared effective pursuant to this rule.

(2) Communications not deemed an offer

The following communications shall not be deemed an offer:

(a) Prior to filing an offering circular, any notice of a proposed offering which satisfies the requirements of SEC Rule 135, Notice of Certain Proposed Offerings , 17 CFR 230.135 (1993); and

(b) Subsequent to filing an offering circular, any notice, circular, advertisement, letter, or other communication published or transmitted to any person which satisfies the requirements of SEC Rule 134, Communications Not Deemed a Prospectus , 17 CFR 230.134 (1993).

(3) Preliminary offering circular

A preliminary offering circular may be used prior to the effective date of the offering circular if:

(a) The preliminary offering circular has been filed pursuant to this rule;

(b) The preliminary offering circular includes the information required by this rule, except for the information relating to offering price, discounts or commissions, amount of proceeds, conversion rates, call prices, or other matters dependent on the offering price; and

(4) Form and Content

Any offering circular or amendment filed pursuant to this rule shall comply with the information requirements of Section (b) of the Securities and Exchange Commission Rule 502, General Conditions to be Met, 17 CFR 230.502 (1993).

(5) Number of Copies

Any filing shall include three copies of each document to be filed with the department. After the effective date of an offering circular, an offering circular which varies from the form previously filed shall not be used, unless it includes only non-material supplemental or additional information and until three copies have been filed with the department.

(6) Effective Date

An offering circular filed with the department is effective on the tenth day after filing. Upon request, the commissioner may declare an earlier effective date if he is satisfied that the offering circular is adequate and that the earlier effective date does not materially prejudice any party in interest. Exceptions include:

(a) If any amendment is filed prior to the effective date, the offering circular shall be deemed to have been filed when such amendment was filed;

(b) If a duly authorized amendment, telegram confirmed in writing, or letter states that the effective date is delayed until a further amendment is filed stating specifically that the offering circular will become effective in accordance with this paragraph; or

(c) If it appears to the department at any time that the offering circular is incomplete or inaccurate in any material respect, the department may determine to declare the offering circular not effective until a materially complete and accurate amendment is filed.

(7) Use of the offering circular

(a) An offering circular or amendment declared effective by the department shall not be used more than nine months after the effective date, unless the information contained therein is as of a date not more than sixteen months prior to such use.

(b) An offering circular filed under this rule shall not extend the period for which an effective offering circular or amendment may be used under Subsection (c).

(c) No offering circular shall be used and no offer or sale of securities subject to the offering circular requirements of this department shall be made subsequent to any material change in an issuer's business operations or financial condition, until the offering circular has been amended to include information as to the material changes and the amended offering circular has been filed with and declared effective by the department.

(8) Withdrawal or abandonment

(a) Any offering circular, amendment, or exhibit may be withdrawn prior to the effective date. A withdrawal shall be signed and state fully the grounds upon which it is made. Any documents withdrawn will not be removed from the files of the department, but will be marked "Withdrawn upon the request of the issuer on (date)."

(b) When an offering circular or amendment has been on file with the department for a period of nine months and has not become effective the department may, in its discretion, determine whether the filing has been abandoned, after notifying the issuer that the filing is out of date and must either be amended to comply with the applicable requirements of this rule or be withdrawn within 30 days after the date of such notice. Where a filing is abandoned, the documents will not be removed from the files of the department, but will be marked "Declared abandoned by the department on (date)."

R331-5-5. Securities Sale Report

Latest version.

Within ten days after the termination of an offering pursuant to this rule, the issuer shall file a report with the department describing the sale of its securities which shall include:

(1) The name and address of the issuer;

(2) The title, number, aggregate and per-unit offering price of the securities sold;

(3) The aggregate and per-unit dollar amounts of actual itemized expenses, discounts or commissions, and other fees;

(4) The aggregate and per-share dollar amounts of the net proceeds raised; and

(5) The number of purchasers of each class of securities sold and the number of beneficial owners of each class of the issuer's equity securities at the termination of the offering.

R331-5-6. Limitations on Resale of "Restricted Securities"

Latest version.

(1) "Restricted Securities" acquired in a transaction pursuant to this rule, shall not be resold or otherwise disposed of for a period of two years without the prior written consent of the department. The issuer shall exercise reasonable care to ensure that the purchasers of the securities are not purchasing for resale or distribution.

(2) Reasonable care shall include the following:

(a) Reasonable inquiry to determine if the purchaser is acquiring the securities for himself or for other persons;

(b) Written disclosure to each purchaser prior to sale that the securities cannot be resold or otherwise disposed of for a period of two years without the prior written consent of the department;

(c) Placement of a legend on the certificate or other document that evidences the securities which states that: "The securities evidenced by this certificate are restricted as to transfer for a period of two years from the date of this certificate pursuant to the rules of the Utah Department of Financial Institutions and may not be sold or otherwise disposed of without the prior written consent of the department";

(d) The determination of the period securities have been held after acquisition for the purposes of this Section shall be made as would be determined under the provisions of the SEC Rule 144(d), Holding Period for Restricted Securities, 17 CFR 230.144(d); and

(e) Where securities of the issuer are exchanged for other securities in any business combination, securities of the issuer which are restricted under this Section may be exchanged for other securities which are similarly restricted and have the legend required by Subsection (c), and the holding periods may run concurrently.

R331-5-7. Remuneration Paid for Solicitation or for Sales

Latest version.

No commission or similar remuneration shall be paid or given directly or indirectly for soliciting any prospective investor or in connection with the offer or sale of the securities in reliance on this rule unless such commission or similar transaction-related remuneration is paid or given to a broker-dealer licensed pursuant to Section 61-1-4 or an issuer's agent licensed to sell as an agent of this issuer pursuant to Section 61-1-4.

R331-5-8. Manipulative and Deceptive Devices

Latest version.

(1) In any offer, purchase, or sale in connection with an issuer's offering of its securities, under this rule, no person, directly or indirectly, shall:

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

(b) Make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, or make any misleading statement; or

(c) Engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.

(2) All documents used in connection with an issuer's offering of securities including, but not necessarily limited to, written promotional materials, offering circulars, and reports of financial condition furnished to prospective purchasers must be accurate and contain no material misstatements or omit to state facts necessary in order to make the statement not misleading.

(3) No person is authorized to make any statement not contained in the disclosure statement.

R331-5-9. Waiver

Latest version.

The department may waive any or all of the requirements of this rule or the filing of any required information if:

(1) the department determines the requirements or information is unnecessary; or

(2) the issuer is subject to supervisory actions of the commissioner.

R331-5-10. Penalties for Violation

Latest version.

Penalties for the violation of this rule shall be the same as those imposed by the provisions of Sections 61-1-21 and 61-1-22.