292.410 Exempt transactions -- Summary order denying or revoking exemption --

1,803 words·~8 min read·/ky/292-410

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Appeal.

(1)Except as expressly provided, KRS 292.330 to 292.390 shall not apply to any of the

following transactions:

(a)Any isolated nonissuer transaction, whether effected through a broker-dealer

or not;

(b)Any nonissuer distribution of an outstanding security by a registered broker-

dealer, if the security has a fixed maturity or a fixed interest or dividend

provision and there has been no default during the current fiscal year or within

the three

(3)preceding fiscal years, or during the existence of the issuer and

any predecessors if less than three

(3)years, in the payment of principal,

interest, or dividends on the security;

(c)Any nonissuer transaction effected by or through a registered broker-dealer

pursuant to an unsolicited order or offer to buy; but the commissioner may by

rule require that the customer acknowledge upon a specified form that the sale

was unsolicited, and that a signed copy of each such form be preserved by the

broker-dealer for a specified period;

(d)Any transaction between the issuer or other person on whose behalf the

offering is made and an underwriter, or among underwriters;

(e)Any transaction in a bond or other evidence of indebtedness secured by a real

or chattel first mortgage or deed of trust, or by an agreement for the sale of

real estate or chattels, if the entire mortgage, deed of trust, or agreement,

together with all the bonds or other evidences of indebtedness secured

thereby, is offered and sold as a unit;

(f)Any transaction by an executor, administrator, sheriff, marshal, receiver,

trustee in bankruptcy, guardian, or conservator;

(g)Any transaction executed by a bona fide pledgee without any purpose of

evading this chapter;

(h)Any offer or sale to a bank, savings institution, trust company, insurance

company, investment company as defined in the Investment Company Act of

1940, 15 U.S.C. secs. 80a-1 et seq., pension or profit-sharing trust, or other

financial institution or institutional buyer, or to a broker-dealer, whether the

purchaser is acting for itself or in some fiduciary capacity;

(i)The offer or sale of a security by the issuer of the security if all of the

following conditions are met:

1. The issuer does not offer or sell the securities by means of a form of

general advertisement or general solicitation. The following shall not

constitute general solicitation within the meaning of this section:

a. Solicitation of indications of interest in accordance with the terms

and conditions as the commissioner may adopt by rule; or

b. Offers to sell securities and the dissemination of written offering

materials in accordance with the terms of this section at least thirty

(30)days after the withdrawal of an application by the issuer to

acquiring the securities for investment and is aware of any restrictions

imposed on transferability and resale of the securities. The basis for

reasonable belief may include:

a. Obtaining a written representation signed by the purchaser that the

purchaser is acquiring the securities for the purchaser's own

investment and is aware of any restrictions imposed on the

transferability and resale of the securities; and

b. Placement of a legend on the certificate or other document that

evidences the securities stating that the securities have not been

registered under this chapter, and setting forth or referring to the

restrictions on transferability and sale of the securities; and 3. The transaction satisfies one

(1)of the following conditions:

a. Each purchaser has access to all the material facts with respect to

the securities by reason of the purchaser's active involvement in

the organization or management of the issuer or the purchaser's

family relationship with a person actively involved in the

organization or management of the issuer;

b. There are not more than fifteen

(15)purchasers in Kentucky

described in subdivision a. of this subparagraph, plus an unlimited

number of purchasers who are "accredited investors" as defined by

Rule 501 of the Securities Act of 1933, 17 C.F.R. sec. 230.501; or

c. The aggregate offering price of the securities, including securities

sold outside of Kentucky, does not exceed one million dollars

($1,000,000), the total number of purchasers who are not

accredited investors, including purchasers outside of Kentucky,

does not exceed thirty-five (35), and each purchaser either receives

all of the material facts with respect to the decision to invest in the

security; 4. Persons receiving commissions, finders' fees, or other remuneration in

connection with sales of securities in reliance on this subsection shall be

registered as a broker-dealer or agent under this chapter unless exempt

from registration; 5. The commissioner may by rule deny the exemption provided in this

subsection to a particular class of issuers or may make the exemption

available to the issuers upon compliance with additional conditions and

requirements, if appropriate in furtherance of the intent of this chapter; 6. The commissioner may, by order, increase the maximum number of

purchasers or the maximum offering amount provided in paragraph 3.c.

of this subsection upon request if the commissioner determines that any

such increase is necessary or appropriate in the public interest or for the

protection of investors. Any request to increase either or both of the

conditions shall be made in writing to the commissioner before any sale

in reliance on the requested increase and shall be accompanied by the

following:

a. A statement of the amount of the increase in the maximum

offering amount or in the number of purchasers being requested,

and the issuer's reasons for requesting the increase;

b. A copy of any offering circular or other written materials being

distributed to prospective purchasers;

c. A copy of the written representation and legend serving as the

issuer's basis for reasonable belief of a purchaser's investment

intent and awareness of restrictions on the transferability and resale

of the security being acquired; and

d. A filing fee of two hundred fifty dollars ($250);

(j)Any offer or sale of a preorganization certificate or subscription, if:

1. No commission or other remuneration is paid or given directly or

indirectly for soliciting any prospective subscriber;

2. The number of subscribers does not exceed twenty-five (25); and

3. No payment is made by any subscriber;

(k)Any transaction pursuant to an offer to existing security holders of the issuer,

including persons who at the time of the transaction are holders of convertible

securities, nontransferable warrants, or transferable warrants exercisable

within not more than ninety

(90)days of their issuance, if no commission or

other remuneration is paid or given directly or indirectly, except to a broker-

dealer registered under this chapter, for soliciting any security holder in this

state;

(l)Any offer of a security for which registration statements have been filed under

both this chapter and the Securities Act of 1933, 15 U.S.C. secs. 77a et seq., if

no stop order or refusal order is in effect and no public proceeding or

examination looking toward such an order is pending under either act;

(m)The issuance of any stock dividend, whether the corporation distributing the

dividend is the issuer of the stock or not, if nothing of value is given by

stockholders for the distribution other than the surrender of a right to a cash

dividend where the stockholder can elect to take a dividend in cash or stock;

(n)Any transaction incident to a right of conversion or a statutory or judicially-

approved reclassification, recapitalization, reorganization, quasi

reorganization, stock split, reverse stock split, merger, consolidation, or sale

of assets;

(o)Any transaction by a person who does not control, and is not controlled by or

under common control with, the issuer if:

1. The transaction is at a price reasonably related to the current market

price;

2. The security is registered under Section 12 of the Securities Exchange

Act of 1934, 15 U.S.C. sec. 78l, and the issuer files reports pursuant to

Section 13 of that act, 15 U.S.C. sec. 78m; and

3. Copies of such federal registration statements, reports, forms or exhibits

as the commissioner may by rule or order require are filed with the

commissioner;

(p)Any transaction by a person who may control, or may be controlled by or

under common control with, the issuer if:

1. The transaction is at a price reasonably related to the current market

price;

2. The security is registered under Section 12 of the Securities Exchange

Act of 1934, 15 U.S.C. sec. 78l, and the issuer files reports pursuant to

Section 13 of that act, 15 U.S.C. sec. 78m;

3. Copies of such federal registration statements, forms, reports, or exhibits

as the commissioner may by rule or order require are filed with the

commissioner; and

4. Such sales by any such person comply with such rules as the

commissioner may prescribe; or

(q)Any transaction for which the commissioner by rule or order finds that

registration is not necessary or appropriate in the public interest or for the

protection of investors.

(2)The commissioner may by order deny or revoke the exemption specified in KRS

292.400(6), (9), or

(12)or in this section with respect to a specific security or

transaction. No such order may be entered without appropriate prior notice to all

interested parties, opportunity for hearing, and written findings of fact and

conclusions of law in accordance with KRS Chapter 13B.

(3)The commissioner may by order summarily deny or revoke any of the specified

exemptions pending final determination of any proceeding under this section where

the commissioner determines that a person has engaged, is engaging, or is about to

engage in an act, practice, or course of conduct constituting a violation of this

chapter or administrative regulation promulgated, or order issued pursuant to this

chapter, or that a person has materially aided, is materially aiding, or is about to

materially aid an act, practice, or course of conduct constituting a violation of this

chapter, an administrative regulation promulgated pursuant to this chapter, or an

order issued under this chapter. Any person aggrieved by an order of the

commissioner under this section may file an application for an emergency hearing

pursuant to KRS 13B.125. The commissioner shall comply with KRS 13B.125

when entering a summary order. The commissioner may modify, stay, extend, or

vacate any summary order issued under this section.

(4)An order issued under this section shall not operate retroactively. No person shall be

considered to have violated this chapter by reason of any offer or sale effected after

the entry of an order under this subsection if he sustains the burden of proof that he

did not know, and in the exercise of reasonable care could not have known of the order. In any proceeding under this chapter, the burden of proving an exemption from a definition is upon the person claiming it.