February 24, 1994
TO: SEC RULES COMMITTEE NO. 20-94
STATE LIAISON COMMITTEE NO. 17-94
UNIT INVESTMENT TRUST COMMITTEE NO. 15-94
ILLINOIS MEMBERS
RE: MAJOR OVERHAUL OF ILLINOIS SECURITIES ACT PROPOSED
__________________________________________________________
The Illinois Secretary of State ("the Secretary") has announced plans to
have a major legislative package introduced in the near future that would create
four new Acts -- the Business Opportunity Sales Law (Article 5), the Business
Brokers Law (Article 10), the Loan Brokers Law (Article 15), and the Uniform
Take-over Law (Article 20). The legislation would also amend and rename the
Illinois Securities Law of 1953 ("the Securities Law") as the Securities Reform
and Investor Protection Act. The proposed amendments to Securities Law are
briefly summarized below.
1. New Disclosure Requirements (Section 7b, pp. 178-179)
The legislation would require every investment company to deliver its
prospectus and statement of additional information to each person prior to or at
the time of sale of the fund's shares. In addition, the legislation would
require the delivery of a supplemental statement along with each prospectus.
This supplemental statement "shall set forth a summary of material facts about
the securities and issuer contained in the prospectus in clear, concise, and
comprehensible language." The form and content of the supplemental statement
shall be defined by the Secretary by rule, regulation, or order.
2. Registration of Investment Company Shares (Section 7, pp. 165-178)
The provisions in the legislation that relate to the registration of
investment company shares include a requirement that to be registered by
coordination, a federal registration statement must be filed under the Securities
Act of 1933 within 30 days of filing the offering with the Secretary. Otherwise,
the shares must be registered by qualification. The legislation deletes the
requirement that a consent to service of process be filed with an application.
The legislation also deletes other provisions in the Securities Law but replaces
them with language that would permit the Secretary to address the area by rule.
These include provisions relating to filing amendments, the period of effective
registration, renewing registrations, and the fees charged to retroactively
register oversold shares.
3. Bank Issues (Section 2.7, p. 103; Section 2.11 pp. 103-105; and
Section 9.1, pp. 218-219)
The proposed legislation would amend the definitions of "dealer" and
"investment adviser" to delete the current exclusion for banks and trust
companies. Also, the proposed legislation would require financial institutions
issuing securities to: (1) disclose in every advertisement whether the
certificate of deposit or security is insured, the identity of the insurer, and
whether the security is backed by the full faith and credit of any government;
and (2) notify a purchaser in writing of the lack of insurance on any security
it issues.
4. Investor Bill of Rights (Section 8.1, pp. 212-217)
The proposed legislation would require every registered dealer to annually
provide each Illinois client with a disclosure document that includes certain
specified disclosures. Along with its annual financial statement, a dealer must
file a certification with the Secretary that the required disclosures have been
made.
5. Telemarketing Provisions (Section 2.30, p. 107 and Section 9.2, pp.
219-220)
The proposed legislation would create a new statutory section providing for
the regulation of telephone solicitations relating to the offer or sale of
securities. The legislation would define "telephone solicitor" and provide for
the regulation of unsolicited telephone call. In particular, the legislation
specifies the hours during which such calls could be made and requires the
solicitor, upon making contact, to immediately identify itself by name as well
as the name of the dealer, investment adviser, or other person on whose behalf
the solicitor is calling. These provisions would not apply to any solicitor with
a pre-existing business relationship with the person called "if the solicitor is
operating under the same exact business name."
6. Enforcement Provisions (Section 11, pp. 221-238; Section 14, pp.
250-252; Sections 14.1-14.3, pp. 252-267)
The proposed legislation includes various amendments to the regulatory and
enforcement authority of the Secretary. These amendments include provisions that
would authorize: (1) the issuance of orders of public censure, accounting,
rescission, disgorgement, costs of investigation, or other necessary relief; and
(2) the imposition of fines not to exceed $25,000 per violation. Also, the
penalty for violation of the Securities Law would be upgraded from a misdemeanor
to a felony and courts would be permitted to order white collar crime forfeiture.
* * * * *
A copy of the relevant pages from the bill is attached. If you would like
to receive a copy of the entire bill, which is 275 pages, please contact my
secretary, Karen Fernandes, at 202/326-5829. Please be aware that as of January
1, 1994, Illinois adopted very stringent lobbying provisions that require
individuals contacting government officials on legislative matters to register
as lobbyists. Failure to register may subject the individual/firm to a $10,000
penalty. Accordingly, should you have any comments on the legislation, please
contact the Institute and not the Securities Division unless you are registered
in Illinois as a lobbyist. We will keep you advised of developments.
Tamara K. Cain
Assistant Counsel
Attachment