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Jan 2009
29
January 29, 2009

State Adds Safeguards to Securities Law

Gov. Jennifer Granholm recently signed into law the new Michigan Uniform Securities Act, which modernizes Michigan’s securities law, establishes additional regulatory safeguards, and enhances enforcement tools designed to address securities fraud, especially if it affects older Michigan residents.

Shane Hansen, a partner at Warner Norcross & Judd LLP who concentrates his practice on securities law, notes that there are three significant changes in the legislation that will have an impact on the local business and investment community:

  • Enhanced penalties of up to $500,000 for "fraudsters" who prey on seniors or other investors who aren’t able to protect their own financial interests.

  • Realignment of registration and related regulatory requirements for "finders" — intermediaries who introduce businesses seeking capital to potential investors in exchange for a commission or "success fee." Under the new law, "finders" must register with the state as a "broker-dealer" regardless of whether they are registered with the federal Securities and Exchange Commission and a member of the Financial Industry Regulatory Authority. Hansen said Michigan has been at the forefront in regulating these activities for the protection of Michigan investors, with only one other state — Texas — that to date has addressed the activities of finders. Anticipated changes in rules issued by the SEC may also address the activities of finders, with a view to helping small businesses raise capital more easily from accredited investors.

  • New registration requirements for individual investment adviser representatives, not just firms, and examination requirements to ensure their understanding of state securities laws. Shane notes that Michigan is the last state to require individual investment adviser representatives to be registered through their advisory firms with the state.

While the Michigan legislation has been signed into law, Hansen notes that now new rules implementing the law must be written, which leaves many questions about some of the regulatory details.

For example, how will "finders" be registered with Michigan without being a member of FINRA? Will currently active investment adviser representatives be required to take the new state examination, or will there be some "grandfathering" exemptions based on experience or other professional credentials? Hansen said he hopes legal guidance from the state in subsequent legislation will clarify these issues.

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