The following securities shall be exempt from the requirements of §§ 31- 5603.01, 31-5603.07, and 31-5604.05:
(1) A security, including a revenue obligation, issued or guaranteed by the United States; an international agency or corporate or other instrumentality of which the United States and one or more foreign governments are members; a state; a political subdivision of a state; or any agency or corporate or other instrumentality of one or more of the foregoing; or a certificate of deposit for any of the foregoing;
(2) A security issued, insured, or guaranteed by Canada; a Canadian province; a political subdivision of an agency or other instrumentality of one or more of the foregoing; or an foreign government with which the United States currently maintains diplomatic relations, if the security is recognized as a valid obligation by the issuer, insurer, or guarantor.
(3) A security issued by and representing an interest in, or a direct obligation of, or guaranteed by, a depository institution or credit union organized under the laws of the United States or a depository institution or credit union organized and supervised under the laws of any state if the deposit or share accounts of the depository institution or credit union are insured by the Federal Deposit Insurance Corporation, the Federal Savings and Loan Insurance Corporation, the National Credit Union Share Insurance Fund, or a successor to one of the foregoing;
(4) A security issued by and representing an interest in, or a direct obligation of, or insured or guaranteed by, an insurance company organized under the laws of any state or the District and authorized to do business in the District; provided, that this exemption shall not apply to an annuity contract, investment contract, or similar security under which the promised payments or rate of return are not fixed in dollars but are substantially dependent upon the investment results of a segregated fund or account invested in securities;
(5) A security issued or guaranteed by a railroad, other common carrier, public utility, or holding company that is:
(A) Subject to the jurisdiction of the Interstate Commerce Commission or a successor agency;
(B) A registered holding company under the Public Utility Holding Company Act of 1935 or a subsidiary of such a company within the meaning of that Act;
(C) Regulated with respect to its rates and charges by a governmental authority of the United States or any state; or
(D) Regulated with respect to the issuance or guarantee of the security by a governmental authority of the United States, any state, the District, Canada, or a Canadian province;
(6)(A) A security which is listed or approved for listing upon notice of issuance on the New York Stock Exchange, the American Stock Exchange, the Philadelphia Stock Exchange, the Midwest Stock Exchange, the Pacific stock exchange, or any other exchange which the Commissioner designates by rule to have substantially the same standards for listing as these exchanges, or designated for trading on the National Association of Securities Dealers Automated Quotation System or any other electronic trading system which the Commissioner designates by rule to have substantially the same standards for listing or trading;
(B) Any other security of the same issuer which is of senior or substantially equal rank;
(C) A security called for by subscription rights or warrants so listed or approved; or
(D) A warrant or right to purchase or subscribe to any of the foregoing;
(7) An option issued by a clearing agency registered under the Securities Exchange Act of 1934, other than an off-exchange futures contract or substantially similar arrangement, if the security, currency, commodity, or other interest underlying the option:
(A) Is registered under § 31-5603.02, § 31-5603.03, or § 31-5603.04;
(B) Is exempt under this section; or
(C) Is not otherwise required to be registered under this chapter;
(8) A security issued by a person organized and operated not for private profit but exclusively for a religious, educational, benevolent, charitable, fraternal, social, athletic, or reformatory purpose or as a chamber of commerce or trade or professional association, and no part of the net earnings of the issuer inures to the benefit of any private shareholder or individual; provided, that at least 10 calendar days before a sale of the security, the person has filed with the Commissioner a notice setting forth the material terms of the proposed sale and copies of any sales and advertising literature to be used and the Commissioner, by order, does not disallow the exemption within the next 5 calendar days;
(9)(A) A promissory note, draft, bill of exchange, or bankers' acceptance that evidences an obligation to pay cash within 9 months after the date of issuance, exclusive of days of grace, that is issued in denominations of at least $50,000, and that receives a rating in one of the 3 highest rating categories from a nationally recognized statistical rating organization;
(B) A renewal of such an obligation that is likewise limited; or
(C) A guarantee of such an obligation or of a renewal;
(10) A security issued in connection with:
(A) A written compensatory benefit plan, including a stock purchase, savings, option, bonus, stock appreciation, profit sharing, thrift, incentive, pension, or similar employees' benefit plan, and interests in such plans established by one or more of the issuers thereof or its parents or affiliates or controlled subsidiaries, for the participation of their employees, directors, general partners, or trustees if the issuer is a business trust, officers, or consultants or advisers of such issuers or their parents or controlled subsidiaries; provided, that bona fide services are rendered by consultants or advisers and the services are not in connection with the offer and sale of securities in a capital-raising transaction; or
(B) A written contract relating to the compensation of such participating persons;
(11) Equipment trust certificates for equipment leased or conditionally sold to a person if securities issued by the person would be exempt under this section; and
(12) A membership or equity interest in, or a retention certificate or like security given in lieu of a cash patronage dividend issued by, a cooperative organized and operated as a nonprofit membership cooperative under the cooperative laws of the District or any state if not traded to the public.
(13) Repealed.
(Oct. 26, 2000, D.C. Law 13-203, § 401, 47 DCR 7837; Oct. 26, 2001, D.C. Law 14-42, § 29(a), 48 DCR 7612; June 25, 2002, D.C. Law 14-150, § 2(i), 49 DCR 4238.)
HISTORICAL AND STATUTORY NOTES
Effect of Amendments
D.C. Law 14-42 repealed par. (13) which had read as follows:
"(13)(A) A security issued by an issuer registered as an open-end management investment company or unit investment trust under section 8 of the Investment Company Act of 1940 if:
"(i) The issuer is advised by an investment adviser that is a depository institution exempt from registration under the Investment Advisers Act of 1940 or that is currently registered as an investment adviser, and has been registered, or is affiliated with an adviser that has been registered, as an investment adviser under the Investment Advisers Act of 1940 for at least 3 years next preceding an offer or sale of a security claimed to be exempt under this subsection, and the issuer has acted, or is affiliated with an investment adviser that has acted, as investment adviser to one or more registered investment companies or unit investment trusts for at least 3 years next preceding an offer or sale of a security claimed to be exempt under this paragraph; or
"(ii) The issuer has a sponsor that has at all times throughout the 3 years before an offer or sale of a security claimed to be exempt under this paragraph sponsored one or more registered investment companies or unit investment trusts the aggregate total assets of which have exceeded $100 million.
"(B) For purposes of this paragraph, the term 'sponsor' means the person responsible for the organization of the unit investment trust or who has continuing responsibilities for the administration of the affairs of the unit investment trust other than a trustee or custodian. The term 'sponsor' shall also include the depositor of the unit investment trust."
Effect of Amendments
D.C. Law 14-150, in par. (10)(A), substituted "general partners, or" for "general partners"; made nonsubstantive changes in pars. (11) and (12); and repealed par. (13) which was previously repealed by D.C. Law 14-42.
Temporary Repeal of Section
For temporary (225 day) repeal of section, see § 2 of Securities Temporary Amendment Act of 2001 (D.C. Law 14-62, February 6, 2002, law notification 49 DCR 2272).
Emergency Act Amendments
For temporary (90 day) amendment of section, see § 2 of Securities Emergency Amendment Act of 2001 (D.C. Act 14-81, July 9, 2001, 48 DCR 6351).
For temporary (90 day) amendment of section, see § 2 of Securities Legislative Review Emergency Amendment Act of 2001 (D.C. Act 14-180, November 19, 2001, 48 DCR 11066).
For temporary (90 day) amendment of section, see § 2 of Securities Congressional Review Emergency Amendment Act of 2001 (D.C. Act 14-217, December 21, 2001, 49 DCR 390).
Legislative History of Laws
For Law 13-203, see notes following § 31-5601.01.
Law 14-42, the "Technical Correction Amendment Act of 2001", was introduced in Council and assigned Bill No. 14-216, which was referred to the Committee of the Whole. The Bill was adopted on first and second readings on June 5, 2001, and June 26, 2001, respectively. Signed by the Mayor on July 24, 2001, it was assigned Act No. 14-107 and transmitted to both Houses of Congress for its review. D.C. Law 14-42 became effective on October 26, 2001.
For Law 14-150, see notes following § 31-5601.01.
Miscellaneous Notes
Section 806 of D.C. Law 13-203 provides: "Titles III and IV shall apply as of June 1, 2001."
Section 29(b) of D.C. 14-42 provides: "Subsection (a) of this section [repealing par. (13)] shall apply as of May 31, 2001."
The following transactions are exempt from §§ 31-5603.01, 31-5603.07, and 31-5604.05:
(1) An isolated nonissuer transaction, whether or not effected through a broker-dealer;
(2) A nonissuer transaction by a licensed agent of a licensed broker-dealer, and a resale transaction by a sponsor of a unit investment trust registered under the Investment Company Act of 1940, in a security of a class that has been outstanding and publicly held for at least 90 days; provided, that at the time of the transaction:
(A) The issuer of the security is actually engaged in business and not in the organizational stage or in bankruptcy or receivership and is not a blank check, blind pool, or shell company whose primary plan of business is to engage in a merger or combination of the business with, or an acquisition of, an unidentified person;
(B) The security is sold at a price reasonably related to the current market price of the security;
(C) The security does not constitute the whole or part of an unsold allotment to, or a subscription or participation by, the broker-dealer as an underwriter of the security;
(D) A nationally recognized securities manual designated by rule or order of the Commissioner or a document filed with the Securities and Exchange Commission which is publicly available through the Securities and Exchange Commission's Electronic Data Gathering and Retrieval System contains:
(i) A description of the business and operations of the issuer;
(ii) The names of the issuer's officers and directors, if any, or, in the case of a non-United States issuer, the corporate equivalents of such persons in the issuer's country of domicile;
(iii) An audited balance sheet of the issuer as of a date within 18 months, or in the case of a reorganization or merger where parties to the reorganization or merger had an audited balance sheet, a pro forma balance sheet as of a date within 18 months;
(iv) An audited income statement for each of the issuer's immediately preceding 2 fiscal years or for the period of existence of the issuer, if in existence for less than 2 years or, in the case of a reorganization or merger where the parties to the reorganization or merger had an audited income statement, a pro forma income statement; and
(E) The issuer of the security has a class of equity securities listed on a national securities exchange registered under the Securities Exchange Act of 1934, or designated for trading on the National Association of Securities Dealers Automated Quotation System or any other electronic trading system which the Commissioner designates by rule to have substantially the same standards for listing or trading, unless:
(i) The issuer of the security is a unit investment trust registered under the Investment Company Act of 1940;
(ii) The issuer of the security has been engaged in continuous business (including predecessors) for at least 3 years; or
(iii) The issuer of the security has total assets of at least $2 million based on an audited balance sheet as of a date within 18 months or, in the case of a reorganization or merger where parties to the reorganization or merger had an audited balance sheet, a pro forma balance sheet;
(3) A nonissuer transaction in a security by a licensed agent of a licensed broker-dealer if:
(A) The issuer of the security is actually engaged in business and not in the organizational stage or in bankruptcy or receivership and is not a blank check, blind pool, or shell company whose primary plan of business is to engage in a merger or combination of the business with, or an acquisition of, an unidentified person ; and
(B) The security is senior in rank to the common stock of the issuer both as to payment of dividends or interest and upon dissolution or liquidation of the issuer, the security has been outstanding at least 3 years, and the issuer or any predecessors has not defaulted within the current fiscal year or the 3 immediately preceding fiscal years in the payment of a dividend, interest, principal, or sinking fund installment on the security when due and payable;
(4) A nonissuer transaction in an outstanding security if the issuer of the security has a class of securities subject to registration under section 12 of the Securities Exchange Act 1934 and has been subject to the reporting requirements of sections 13 or 15(d) of the Securities Exchange Act of 1934 for not less than 90 days next preceding the transaction, or has filed and maintained with the Commissioner for not less than 90 days preceding the transaction information, in the form that the Commissioner, by rule, specifies, substantially comparable to the information that the issuer would be required to file under section 12(b) or (g) of the Securities Exchange Act of 1934 if the issuer had a class of its securities registered under section 12 of the Securities Exchange Act of 1934;
(5) A nonissuer transaction in a security that has a fixed maturity or a fixed interest or dividend provision and for which there has been no default in the payment of principal, interest, or dividends on the security during the current fiscal year or within the 3 past years, or, if less than 3 years, during the existence of the issuer and any predecessors;
(6) A nonissuer transaction effected by or through a licensed broker-dealer under an unsolicited order or offer to purchase, if either the confirmation of the transaction delivered to the customer clearly states that the transaction was unsolicited, or the broker-dealer obtains a written acknowledgment signed by the customer that the transaction was unsolicited, and a copy of the confirmation or the acknowledgment is preserved by the broker-dealer for such period as the Commissioner may, by rule, require;
(7) A transaction between the issuer or other person on whose behalf the offering of a security is made and an underwriter, or a transaction among underwriters;
(8) A transaction in a bond or other evidence of indebtedness secured by a real estate mortgage, deed of trust, personal property security agreement, or by an agreement for the sale of real estate or personal property, 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;
(9) A transaction by an executor, administrator, sheriff, marshal, receiver, trustee in bankruptcy, guardian, or conservator;
(10) A transaction executed by a bona fide secured party without any purpose of evading this chapter;
(11) An offer to sell, or the sale of a, security to a financial institution or institutional investor or to a broker-dealer, whether the purchaser is acting for itself or in some fiduciary capacity;
(11A) An offer to sell, or the sale of a security, by an issuer to an accredited investor;
(12)(A) Subject to subparagraph (B) of this paragraph, a transaction pursuant to an offer directed by the offeror to not more than 25 persons, other than those designated in § 31-5602.02(a)(1), in the District during any period of 12 consecutive months, whether or not the offeror, or any of the offerees, is then present in the District at the time of the transaction, if:
(i) The seller reasonably believes that all the purchasers in the District are purchasing for investment; and
(ii) No commission or other remuneration is paid or given directly or indirectly for soliciting a prospective purchaser in the District except to a licensed broker-dealer or a licensed agent.
(B) The Commissioner may, by rule or order, as to a security or transaction or any type of security or transaction, withdraw or further condition this exemption, increase or decrease the number of purchasers permitted, or waive one or more of the conditions in this paragraph;
(13) To the extent permitted by rule or order of the Commissioner, an offer or sale within the District by an issuer now or hereafter exempt from section 5 of the Securities Act of 1933 by a rule or regulation adopted by the Securities and Exchange Commission under section 3(b) or section 4(2) of that Act if the issuer files with the Commissioner a notice of intent to claim exemption under this paragraph, at such time, in such form, and containing such information as the Commissioner determines;
(14) An offer or sale of a preorganization certificate or subscription if:
(A) No commission or other remuneration is paid or given directly or indirectly for soliciting any prospective subscriber;
(B) The number of subscribers does not exceed 10; and
(C) No payment is made by a subscriber;
(15) A 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 90 days of their issuance, if no commission or other remuneration, other than a standby commission, is paid or given directly or indirectly for soliciting a security holder in the District except to a licensed or exempt broker-dealer;
(16) A transaction involving an offer to sell, but not a sale, of a security if:
(A) A registration statement or offering statement or similar document as required under the Securities Act of 1933 has been filed with the Securities and Exchange Commission, but is not effective;
(B) A registration statement, if required, has been filed under § 31- 5603.02, but is not effective; and
(C) No stop order of which the offeror is aware has been entered by the Commissioner or the Securities and Exchange Commission;
(17) The issuance of a security dividend, whether the corporation distributing the dividend is the issuer of the security or not, if nothing of value is given by security holders for the distribution other than the surrender of a right to a cash dividend where the security holder can elect to take a dividend in cash or in a security;
(18) A transaction involving an offer to sell, but not a sale, of a security if:
(A) A registration statement has been filed under § 31-5603.04, but is not effective; and
(B) No stop order of which the offeror is aware has been entered by the Commissioner or the Securities and Exchange Commission;
(19) A transaction incident to a right of conversion or a statutory or judicially approved reclassification, recapitalization, reorganization, quasi-reorganization, stock split, reverse stock split, merger, triangular merger, consolidation, sale of assets, or exchange of securities; and
(20) An offer or sale of units of fractional undivided interests in a unit investment trust registered under the Investment Company Act of 1940 if:
(A) The units have been the subject of a previously effective registration statement under this chapter or were exempt from registration;
(B) The units are offered or sold by a broker-dealer licensed under this chapter; and
(C) The broker-dealer is a sponsor or depositor of the unit investment trust or is an affiliate of the sponsor or depositor.
(Oct. 26, 2000, D.C. Law 13-203, § 402, 47 DCR 7837; June 25, 2002, D.C. Law 14-150, § 2(j), 49 DCR 4238.)
HISTORICAL AND STATUTORY NOTES
Effect of Amendments
D.C. Law 14-150, in par. (11), substituted "financial institution" for "financial"; added par. (11A); and in par. (12)(A), substituted "subparagraph (B) of this paragraph" for "paragraph (2) of this subsection".
Legislative History of Laws
For Law 13-203, see notes following § 31-5601.01.
For Law 14-150, see notes following § 31-5601.01.
The Commissioner may, by rule or order, exempt any other security or transaction or class of securities or transactions from § 31-5603.01, § 31-5603.07, or § 31-5604.05. The Commissioner may, by rule or order, adopt a limited offering transactional exemption that will further the objectives of compatibility with the exemptions from securities registration under the Securities Act of 1933 and uniformity among the states.
(Oct. 26, 2000, D.C. Law 13-203, § 403, 47 DCR 7837.)
HISTORICAL AND STATUTORY NOTES
Legislative History of Laws
For Law 13-203, see notes following § 31-5601.01.
(a) The Commissioner may, by order, deny or revoke an exemption specified in § 31-5604.01(7), (8), (10) or (12) or in § 31-5604.02 for any security or transaction.
(b) An order issued under this section shall not be retroactive. A person shall not violate § 31-5603.01, § 31-5603.07, or § 31-5604.05 by reason of an offer to sell or sale effected after the entry of an order under this section if the person did not know and, in the exercise of reasonable care could not have known, of the order.
(Oct. 26, 2000, D.C. Law 13-203, § 404, 47 DCR 7837.)
HISTORICAL AND STATUTORY NOTES
Legislative History of Laws
For Law 13-203, see notes following § 31-5601.01.
The Commissioner may, by rule or order, require the filing of a prospectus, pamphlet, circular, form letter, advertisement, or other sales literature or advertising communication, whether communicated in printed form, by electronic means, or otherwise, addressed or intended for distribution to prospective investors, including clients or prospective clients of an investment adviser, unless the security or transaction is exempt under § 31-5604.01 or § 31- 5604.02, the security is a federal covered security, the transaction concerns a federal covered security or a federal covered adviser, or the transaction concerns a broker-dealer registered under the Securities Exchange Act of 1934.
(Oct. 26, 2000, D.C. Law 13-203, § 405, 47 DCR 7837.)
HISTORICAL AND STATUTORY NOTES
Legislative History of Laws
For Law 13-203, see notes following § 31-5601.01.
(a) In furtherance of the policy stated in § 31-5601.02(b), the exemptions under §§ 31-5604.01, 31-5604.02, and 31-5604.03 shall be coordinated with exemptions for securities and transactions under the Securities Act of 1933 so that an offering registered under the Securities Act of 1933 shall be subject to registration by filing under this chapter in the absence of an exemption under this chapter, and an offering exempt from registration under the Securities Act of 1933, other than under the exemption for intrastate offerings, shall be exempt from registration under this chapter.
(b) The Commissioner may make, amend, and rescind rules and regulations for exemptions under §§ 31-5604.01and 31-5604.02, or added by the Commissioner under § 31-5604.03, but not contained in the Securities Act of 1933 or any of the rules and regulations promulgated thereunder.
(Oct. 26, 2000, D.C. Law 13-203, § 406, 47 DCR 7837.)
HISTORICAL AND STATUTORY NOTES
Legislative History of Laws
For Law 13-203, see notes following § 31-5601.01.
