LRB-4599/1
ARG:wlj
2017 - 2018 LEGISLATURE
November 29, 2017 - Introduced by Representatives Jarchow, Sanfelippo,
Kooyenga, Hutton, Tusler and Goyke, cosponsored by Senators Craig,
Vukmir and Stroebel. Referred to Committee on Financial Institutions.
AB692,1,6 1An Act to repeal 551.205 (3); to amend 551.202 (26) (a), 551.202 (26) (b),
2551.202 (26) (e), 551.202 (26) (f) 3., 551.202 (26) (h), 551.202 (27) (a), 551.202
3(27) (b), 551.202 (27) (g), 551.202 (27) (j), 551.205 (1) (a), 551.205 (1) (b) 2. c.,
4551.205 (1) (b) 2. d., 551.205 (1) (b) 2. e. and 551.205 (2) (intro.); and to create
5551.202 (26m) of the statutes; relating to: securities registration exemptions
6related to crowdfunding.
Analysis by the Legislative Reference Bureau
This bill modifies requirements for certain securities transactions to be exempt
from registration with the Division of Securities in the Department of Financial
Institutions and creates a new exemption for certain offers, but not sales, of
securities associated with an existing exemption.
Under current law, a person may not offer or sell any security in this state
unless the security is registered with the division, the security or transaction is
exempt from registration, or the security is a federal covered security. There are two
similar transaction exemptions related to crowdfunding that exempt securities
offerings from registration with the division if specified requirements are met.
Among these requirements, there is a limit on the amount of money that may be
raised through the offering and on the amount of money that may be received from
any single purchaser. Funds received from the offering must be deposited in a
financial institution chartered under the laws of this state. The issuer of the security

must be a business entity organized under the laws of this state and authorized to
do business in this state. The transaction must meet exemption requirements for
intrastate offerings under federal law and Rule 147 adopted by the federal Securities
and Exchange Commission. The issuer must also make certain disclosures to
purchasers, including that the securities have not been registered and are subject to
limitations on resale.
Under one of these crowdfunding exemptions, the offering must be made
exclusively through an Internet site registered with the division. The Internet site
operator must be a business entity organized under the laws of this state and
authorized to do business in this state. The Internet site operator may register with
the division without also being registered as a broker-dealer if it satisfies certain
conditions, including that, with an exception, it is not compensated based on the
amount of securities sold and the fee it charges is a fixed amount for each offering,
a variable amount based on the length of time that the securities are offered on the
Internet site, or a combination of these fixed and variable amounts. If the SEC
adopts rules that authorize funding portals registered with the SEC to receive
commissions without also registering with the SEC as broker-dealers, the division
must promulgate rules, consistent with the SEC rules, authorizing Internet site
operators to receive commissions without also registering with the division as
broker-dealers.
The crowdfunding exemption under which the offering is not required to be
made through an Internet site prohibits general solicitation or general advertising
in connection with the offering unless permitted by the division.
This bill makes the following changes related to these two crowdfunding
exemptions from securities registration:
1. Under the bill, an issuer claiming either of these exemptions must have a
principal place of business in this state, but is not required to be organized under the
laws of this state.
2. Under the bill, any financial institution may hold funds in connection with
an offering under these exemptions, as the bill removes the limitation that the
financial institution be chartered under the laws of this state.
3. For an offering required to be made through an Internet site, the bill allows
the fee received by an Internet site operator to include a commission, which may be
based on the amount of securities sold, without the Internet site operator registering
as a broker-dealer. The bill also repeals the requirement that the division
promulgate rules allowing Internet site operators not registered as broker-dealers
to receive commissions if the SEC adopts rules to allow it on a federal level.
4. For an offering required to be made through an Internet site, the bill
eliminates the requirement that the issuer's quarterly report to investors be filed
with the division, but requires the issuer to provide a copy of the quarterly report to
the division upon request.
5. The bill removes references to SEC Rule 147 and replaces them with
references to SEC Rule 147A, which is a new intrastate sales exemption rule adopted
by the SEC.

The bill also creates a new exemption for offers, but not sales, of securities
intended to be subsequently sold under a crowdfunding exemption. This new
exemption allows an issuer to make an initial solicitation of interest in the offering.
Under this exemption, an offer to sell a security is exempt from registration if certain
requirements are met, including all of the following: 1) the offer is made in a
newspaper, by media broadcast, by Internet, or by certain other means for the sole
purpose of soliciting an indication of interest from prospective purchasers in
receiving a prospectus, private placement memorandum, or equivalent disclosure
document for the security; 2) the issuer intends that sales of the security be made
under the Internet crowdfunding exemption; 3) prior to the initial solicitation of
interest, the offeror files with the division a completed solicitation of interest form,
together with any other materials to be used to conduct solicitations of interest; 4)
the material used in the solicitation of interest contains certain disclosures; 5) no
sales of the security are made until 20 calendar days after the last solicitation of
interest; and 6) during the solicitation of interest period, neither the issuer nor any
person acting on its behalf accepts or solicits money or other commitments to
purchase securities. Under certain circumstances, this exemption may apply even
if all of these requirements are not met.
For further information see the state fiscal estimate, which will be printed as
an appendix to this bill.
The people of the state of Wisconsin, represented in senate and assembly, do
enact as follows:
AB692,1 1Section 1. 551.202 (26) (a) of the statutes is amended to read:
AB692,3,42 551.202 (26) (a) The issuer of the security is a business entity organized under
3the laws of this state and authorized to do
with a principal place of business in this
4state and that is doing
business in this state.
AB692,2 5Section 2. 551.202 (26) (b) of the statutes is amended to read:
AB692,3,96 551.202 (26) (b) The transaction meets the requirements of the federal
7exemption for intrastate offerings in section 3 (a) (11) of the Securities Act of 1933
8(15 USC 77c (a) (11)) and Rule 147 147A adopted under the Securities Act of 1933 (17
9CFR 230.147 230.147A).
AB692,3 10Section 3. 551.202 (26) (e) of the statutes is amended to read:
AB692,4,3
1551.202 (26) (e) The Except as provided in sub. (26m), the offering under this
2subsection is made exclusively through one or more Internet sites and each Internet
3site is registered with the division under s. 551.205 (1) (b).
AB692,4 4Section 4. 551.202 (26) (f) 3. of the statutes is amended to read:
AB692,4,125 551.202 (26) (f) 3. An escrow agreement with a bank, savings bank, savings and
6loan association, or credit union chartered under the laws of authorized to do
7business in
this state in which the investor funds will be deposited, providing that
8all offering proceeds will be released to the issuer only when the aggregate capital
9raised from all investors is equal to or greater than the minimum target offering
10amount specified in the business plan as necessary to implement the business plan
11and that all investors may cancel their commitments to invest if that target offering
12amount is not raised by the time stated in the disclosure document.
AB692,5 13Section 5. 551.202 (26) (h) of the statutes is amended to read:
AB692,4,1814 551.202 (26) (h) The issuer informs all prospective purchasers of securities
15offered under this subsection that the securities have not been registered under
16federal or state securities law and that the securities are subject to limitations on
17resale. The issuer shall display the following legend conspicuously on the cover page
18of the disclosure document:
AB692,5,1019 IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON
20THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE
21OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE
22SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR
23STATE SECURITIES COMMISSION OR DIVISION OR OTHER REGULATORY
24AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT
25CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS

1DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
2OFFENSE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
3TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR
4RESOLD EXCEPT AS PERMITTED BY SUBSECTION (e) OF SEC RULE 147 147A
5(17 CFR 230.147 230.147A (e)) AS PROMULGATED UNDER THE SECURITIES
6ACT OF 1933, AS AMENDED, AND THE APPLICABLE STATE SECURITIES
7LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
8INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR
9THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD
10OF TIME.
AB692,6 11Section 6. 551.202 (26m) of the statutes is created to read:
AB692,5,1412 551.202 (26m) (a) An offer to sell, but not a sale, of a security by an issuer if,
13subject to par. (b), the offer is conducted in accordance with all of the following
14requirements:
AB692,5,2015 1. The offer contains information required in the solicitation of interest form
16prescribed by the division and is made by or on behalf of the issuer by means of a
17newspaper publication, scripted media broadcast, Internet posting, or delivery of
18notices to be published or other documents, for the sole purpose of soliciting an
19indication of interest from prospective purchasers in receiving a prospectus, private
20placement memorandum, or equivalent disclosure document for the security.
AB692,5,2221 2. The issuer intends that sales of the security be made pursuant to the
22exemption under sub. (26).
AB692,6,823 3. Prior to the initial solicitation of interest made under this subsection, the
24offeror files with the division a completed solicitation of interest form, as prescribed
25by the division, together with any other materials to be used to conduct solicitations

1of interest, including the script of any broadcast to be made, any information to be
2posted on the Internet, and a copy of any notice to be published. Any amendments
3to the solicitation of interest form or to any related materials used to conduct
4solicitations shall be filed with the division not later than the date of their first use.
5Any written or posted document under this subdivision may include a coupon, or
6digital form, returnable to the issuer indicating interest in a potential offering and
7revealing the name, address, electronic mail address, and telephone number of the
8prospective purchaser.
AB692,6,129 4. The text of any published notice or script for broadcast, any information to
10be posted on the Internet, and any printed material delivered in any solicitation of
11interest under this subsection begins with the disclosures and information required
12in, and in the format of, the solicitation of interest form prescribed by the division.
AB692,6,1613 5. The offeror does not know, and in the exercise of reasonable care could not
14know, that any of the issuer's officers, directors, general partners, controlling
15persons, or affiliates are or would be disqualified from use of the registration
16exemption under this subsection.
AB692,6,1817 6. No solicitation of interest pursuant to this subsection is made after the filing
18of materials required for the exemption under sub. (26).
AB692,6,2419 7. No sales of the securities that are the subject of solicitations of interest under
20this subsection are made until 20 calendar days after the last delivery of a solicitation
21of interest document, scripted media broadcast, Internet post, or other media
22publication. For purposes of this subdivision, the last delivery date for solicitations
23of interest by means of the Internet is the last day on which a digital form is available
24for a prospective purchaser's response indicating interest.
AB692,7,3
18. During the solicitation of interest period, neither the issuer nor any person
2acting on its behalf accepts or solicits money, subscriptions, or commitments to
3purchase securities.
AB692,7,64 (b) A failure to comply with any of the requirements for exemption under par.
5(a) does not result in the loss of the exemption under this subsection for any offer to
6a particular person if the offeror demonstrates that all of the following apply:
AB692,7,87 1. The failure to comply did not pertain to a requirement directly intended to
8protect that particular person.
AB692,7,109 2. The failure to comply was insignificant with respect to the offering as a
10whole.
AB692,7,1211 3. A good faith and reasonable attempt was made to comply with all
12requirements under par. (a).
AB692,7 13Section 7. 551.202 (27) (a) of the statutes is amended to read:
AB692,7,1614 551.202 (27) (a) The issuer of the security is a business entity organized under
15the laws of this state and authorized to do
with a principal place of business in this
16state and that is doing
business in this state.
AB692,8 17Section 8. 551.202 (27) (b) of the statutes is amended to read:
AB692,7,2118 551.202 (27) (b) The transaction meets the requirements of the federal
19exemption for intrastate offerings in section 3 (a) (11) of the Securities Act of 1933
20(15 USC 77c (a) (11)) and Rule 147 147A adopted under the Securities Act of 1933 (17
21CFR 230.147 230.147A).
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