Ariz. Admin. Code § 14-4-145

Current through Register Vol. 30, No. 25, June 21, 2024

Section R14-4-145 - Exemption for Electronic Venture Capital Networks

A. Definitions and terms. As used in this Section, the following terms shall have the meaning indicated:

1. "Accredited Investor" shall have the meaning provided in R14-4-126.

2. "Listed Company" shall mean a business that maintains a listing on the Network.

3. "Net Earnings" shall mean the after-tax earnings of a company or issuer that are derived from its normal operations, exclusive of extraordinary and nonrecurring items, determined according to generally accepted accounting principles.

4. "Network" shall mean a computer matching or listing service or system that facilitates the matching of businesses in need of capital to investors by enhancing the flow of information between businesses and investors.

5. "Affiliate" shall mean a person or entity that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the person or entity specified.

6. "Operator" shall mean the person or entity that owns, operates, sponsors or conducts a Network and any employees. An Operator shall not include a dealer, an affiliate of a dealer, an investment adviser, or an affiliate of an investment adviser.

7. "Securities Act" shall mean the Securities Act of Arizona, A.R.S. § 44-1801 et seq.

B. No Network or Operator shall be required to register as a dealer or salesman pursuant to Article 9 of the Securities Act, nor shall a Network or Operator be required to be licensed or file a notice as an investment adviser or investment adviser representative pursuant to Article 4 of the Arizona Investment Management Act (A.R.S. Title 44, Chapter 13), provided that the Network or Operator complies with the following conditions:

1. The Network or Operator shall not provide advice about any particular opportunities or ventures or make recommendations concerning any Listed Company;

2. The Network or Operator shall not receive compensation other than flat fees to cover administrative costs and such fees will not be made contingent upon the outcome or completion of any securities transaction resulting from a listing on the Network;

3. The Network or Operator shall not participate in any negotiations between investors and any Listed Company;

4. The Network or Operator shall not directly or indirectly assist any investor or Listed Company with any transaction;

5. The Network or Operator shall not handle funds or securities involved in any transaction;

6. The Network or Operator shall not hold themselves out as providing any securities-related services other than a listing or matching service;

7. The Network or Operator shall list only companies that the Network or Operator reasonably believes do not fall within the disqualification provisions listed in subsection (C);

8. The Network or Operator shall limit access to information on Listed Companies to only those persons or entities that the Network or Operator reasonably believes are Accredited Investors;

9. Information contained on the Network shall not be organized or presented in a manner that suggests that the Network recommends the purchase, holding or sale of any security;

10. Any information contained on the Network concerning any Listed Company will be readily available in documents from the Listed Company or its agents and, where required by law, will be filed with the appropriate state and federal authorities;

11. A Listed Company shall have a specific business plan or purpose, but its plan or purpose shall not be to engage in a merger or acquisition with an unidentified company or companies, or other entity or person;

12. Listed Company offerings may not exceed an aggregate of $5,000,000 in any consecutive 12 month period;

13. Operator or Network officials, participants, and employees with direct or indirect operating or supervisory control over Network operations will not participate as investors in any Listed Company unless such participation is in compliance with securities laws and such participation is disclosed on the Network.

C. This exemption is not available for any Network, Operator, or Listed Company if such entity or predecessor or any of its officers, directors, 10% stockholders, promoters or any selling agents of the securities to be offered, or any officer, director or partner of such selling agent:

1. Has filed a registration statement which is the subject of a registration stop order entered pursuant to any state's securities law within five years of the proposed offering;

2. Has been convicted within five years of the proposed offering of any felony or misdemeanor in connection with the offer, purchase or sale of any security or any felony involving fraud or deceit, including, but not limited to, forgery, embezzlement, obtaining money under false pretenses, larceny, or conspiracy to defraud;

3. Is subject to any state administrative enforcement order or judgment entered by that state's securities administrator within five years of the proposed offering, or is subject to any state's administrative enforcement order or judgment in which fraud or deceit, including, but not limited to, making untrue statements of material facts and omitting to state material facts, was found and the order or judgment was entered within five years of the proposed offering;

4. Is subject to any state's administrative enforcement order or judgment which prohibits, denies or revokes the use of any exemption from registration in connection with the proposed offer, purchase or sale of securities;

5. Is subject to any order, judgment or decree of any court of competent jurisdiction temporarily or preliminarily restricting or enjoining, or is subject to any order, judgment or decree of any court of competent jurisdiction, permanently restraining or enjoining such party from engaging in or continuing any conduct or practice in connection with the purchase or sale of any security or involving the making of any false filing with the state entered within five years of the proposed offering.

D. The Commission, at its discretion, may waive any disqualification caused by subsection (C).

E. Any disqualification caused by subsection (C) shall cease to exist if any of the following occurs:

1. The basis for the disqualification has been removed by the jurisdiction creating it;

2. The jurisdiction in which the disqualifying event occurs issues a written waiver of the disqualification;

3. The jurisdiction in which the disqualifying event occurred declines in writing to enforce the disqualification.

F. The Commission may by order revoke or suspend this exemption if it finds that the operation of the Network or Operator would work or tend to work a fraud or deceit upon investors or potential investors.

Ariz. Admin. Code § R14-4-145

Adopted effective September 11, 1998 (Supp. 98-3).