SESSION OF 2002

SUPPLEMENTAL NOTE ON SENATE BILL NO. 398

As Amended by Senate Committee on

Financial Institutions and Insurance

Brief

 SB 398, as amended, concerns the regulation of securities transactions in this state. The bill makes several technical and clarifying amendments to the Kansas Security Act, as well as the following:

• Allows the Securities Commissioner to consider any criminal conviction (not just a felony conviction) in determining the character and reputation of an applicant for registration under the act; 

• To ensure compliance with the act, allows the Commissioner to deny, suspend, or revoke the registration of persons registered under the act who fail to reasonably supervise their employees; 

• Adds investment adviser representative in several sections of the bill as an update of the act in conformity with the National Securities Market Improvement Act; 

• Authorizes the Commissioner to participate in additional central registration depositories, i.e, the Investment Adviser Registration Depository;

• Modernizes the acceptable methods of communication between the Commissioner and registrants to allow electronic means; 

• Updates descriptions of financial statements in conformity with generally accepted accounting principles and allows the Commissioner, by rule and regulation or order, to require financial statements of a securities issuer to be reviewed or audited by independent certified public accountants;

• Deletes from the act sections that specify exempt securities issued by Kansas-based nonprofit organizations thereby recognizing the preemption of the state law by the federal Philanthropy Act of 1995;

• Specifies that, in an administrative proceeding, service of process under the act is made in accordance with the Kansas Administrative Procedure Act, and that every hearing in such a proceeding is public unless the Commissioner grants a request joined in by all parties that the hearing be private; 

• Allows the Commissioner to issue an order requiring a person who has violated the act to pay restitution for any loss arising from the violation, or require the person to disgorge any profits arising from the violation (an interest penalty of 15 percent also may be assessed); and

• Allows the Commissioner to require persons subject to examination to reimburse the agency for all reasonable costs of the examination.

 The amendment allows the Commissioner, by rule and regulation or by order, to require the filing of a notice and specify conditions for an exempt security issued by any person organized and operated not for private profit but exclusively for religious, educational, and other benevolent purposes set out in the act.

Background

 SB 389 was recommended by the Securities Commissioner who explained that the bill updates or removes obsolete provisions of the act, promotes uniformity with other states’ and federal securities laws, improves the understandability of the act, and reduces the likelihood of noncompliance due to misunderstanding.

 The fiscal note prepared by the Division of the Budget indicates that some revenue from the reimbursed costs of examination would offset the expenses of the examination, but it is not possible to provide an estimate of the reimbursement amount at the present time.