Wednesday, November 10, 2010

Michigan Issues Fifth Transition Order Following Adoption of its 2009 New Securities Act

The nonprofit organization Exemption for securities, previous Act-exempt broker-dealers, Canadian broker-dealers and their agents, and senior-specific designations are the provisions covered in the fifth transition order of the Michigan Office of Financial and Insurance Regulation following adoption of the State’s new uniform securities act on October 1, 2009.

Nonprofit organization securities exemption. Nonprofit organization issuers may only claim Michigan's self-executing nonprofit organization securities exemption at 451.2201(g) of the Michigan Uniform Securities Act of 2009 if their offers or sales are part of an issue having an aggregate sales price of $500,000 or less and sold to a bona fide member of the issuing organization without payment of a commission or consulting fee. Nonprofit organization issuers not qualifying for the exemption must register the securities by qualification, by filing with the Administrator at least 20 days before the offer or sale of the security, an offering circular or prospectus stating the material terms of the proposed offer or sale, together with copies of any proposed to-be-used advertising or sales literature, and a $250 registration fee. The securities are considered approved as registered if the issuer does not receive a written notice disallowing the registration within 20 business days of the Administrator’s receipt of the filing. NOTE: Neither the self-executing exemption nor the registration requirements will apply to any offer or sale made within one year after the November 1, 2010 date of this fifth transition order in accordance with a good faith offering made before the November 1, 2010 date of this fifth transition order.

Broker-dealers exempt under the Michigan's predecessor Act. Persons who were both registered as broker-dealers and exempt from investment adviser registration under the predecessor Michigan Securities Act in effect before the Model 2002 Uniform Securities Act replaced it on October 1, 2009 may, by December 1, 2010, register as investment advisers by following the procedures in paragraph 4 of the first transition order that also requires paying the $200 investment adviser fee and submitting a list of employed/associated investment adviser representatives. Previously exempt broker-dealers timely filing an application will be exempt from investment adviser registration unless and until the Administrator approves or denies their application, and will not be subject to fines or penalties between October 1, 2010 and the date their application is approved or denied solely because of failure to be registered as investment advisers during this time period, although they remain subject to Michigan's fraud and other liability provisions.

Investment adviser representatives of previously exempt broker-dealers. Investment adviser representatives associated with or employed by a previously exempt broker-dealer that timely filed an application for investment adviser registration will, themselves, be exempt from investment adviser representative registration unless and until the Administrator: (1) approves or denies the employing exempt broker-dealer's investment adviser application and, if approved, (2) also approves or denies the investment adviser representatives' registration, provided the individuals file their investment adviser representative applications and comply with all related requirements by May 2, 2011. Individuals will not be subject to fines or penalties between October 1, 2010 and the date their application is approved or denied solely because of not being registered as investment adviser representatives during this time period, although they remain subject to Michigan’s fraud and other liability provisions. Investment adviser representatives relying on a waiver from the written examination requirement in accordance with Transition Order No. 4 must send the Administrator an Investment Adviser Representative Certification and Consent Form no later than February 1, 2011.

See Transition Order No. 1 that contains Michigan’s investment adviser and investment adviser representatives requirements, as well as Transition Order No. 3 that clarifies the requirements.

Canadian broker-dealer exemption. A Canadian-registered broker-dealer without a place of business in Michigan is exempt from registration in the State when effecting or attempting to effect securities transactions with either: (1) an individual from Canada temporarily present in Michigan and with whom the Canadian broker-dealer had a bona fide business relationship before the individual entered the United States; (2) an individual from Canada now present in Michigan whose transactions are in a self-directed tax advantage retirement plan the individual holds or contributes to in Canada; or (3) an individual present in Michigan with whom the broker-dealer customer relationship arose while the individual was temporarily or permanently residing in Canada.

Agents of Canadian broker-dealers. Agents of Canadian broker-dealers exempt from Michigan’s registration requirements may effect the same above-mentioned securities transactions permitted to their employing/associating broker-dealers.

Prohibited use of senior-specific certifications and professional designations. Michigan-registered broker-dealers, agents, investment advisers and investment adviser representatives are prohibited from using certain professional designations or certifications that state or imply specialized knowledge of the financial needs of senior investors. The use of these "senior designations" by a broker-dealer, agent, investment adviser or investment adviser representative is a fraudulent, unethical practice under Section 451.2502(3)(a) of the Michigan Uniform Securities Act of 2009. Only those professional designations attained through prescribed training offered by a nationally recognized accredited institution are approved professional designations by the Commissioner.

For more information please see http://www.michigan.gov/ofir

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