AN ACT CONCERNING THE CONNECTICUT BUSINESS OPPORTUNITY INVESTMENT ACT.

The bill makes changes to the Connecticut Business Opportunity Act. It adds definitions, consolidates existing registration procedures, and expands disclosure requirements. It eliminates exclusions and expands the situations under which the commissioner can issue a stop order.

The bill also specifies that a trust account associated with selling a business opportunity can be with a licensed bank or other depository institution. Current law says the trust account has to be with a bank or a savings institution.

The bill prohibits a person, in connection with any procedures under the Act, from omitting to state a material fact so as to make the statement, in light of the circumstances under which it was made, false or misleading.

The bill makes minor changes to the Uniform Securities Act and other minor, technical, and conforming changes.

This bill defines the term “affiliate,” as used in the Connecticut Business Opportunity Investment Act, as a person who:

1. directly or indirectly controls, is controlled by, or is under common control with, a seller;

2. directly or indirectly owns, controls or holds with power to vote 10% or more of a seller's outstanding voting securities; or

3. has, in common with a seller, one or more partners, officers, directors, trustees, branch managers or other persons occupying similar status or performing similar functions.

The bill also changes the definition of “seller” in the context of a business opportunity, to clarify that the Act applies to the seller of a single opportunity, rather than more than one, as appears to be the case under current law.

By law, the disclosure document must include, relative to certain individuals, a statement disclosing who at any time during the previous seven years:

1. has been convicted of a felony or pleaded nolo contendere to a felony charge if it involved fraud;

2. has been held liable in a civil action resulting in a final judgment or has settled out of court any civil action, or is a party to any civil action (a) involving allegations of fraud or (b) which was brought by a present or former purchaser-investor and which involves or involved the business opportunity relationship;

3. is subject to any currently effective state or federal agency or court injunctive or restrictive order, is a party to a proceeding currently pending in which such an order is sought, affecting business opportunity activities or the seller-purchaser-investor relationship, or involving fraud.

This information must be provided generally for the seller, its affiliate, predecessor, current directors, executive officers, trustees, general partners, general managers, persons who will represent the seller in offering or selling business opportunities in the state, and any other persons charged with responsibility for the seller's business activities. The bill instead requires the information to be provided going back 10 fiscal years instead of seven. It also requires information to be provided for these individuals if they are or were a principal, director, executive officer or partner of any other person that was held liable, settled, or is a party to the civil action or pending proceedings discussed above.

The bill also changes, from seven to 10 fiscal years, the look-back period for those that have (1) filed bankruptcy or been adjudged bankrupt; (2) been reorganized due to insolvency; or (3) been a principal, director, executive officer or partner of any other person that has so filed or was so adjudged or reorganized, during or within one year after the period that such a person held that position with the other person.

The bill also makes a number of other minor changes to the disclosure requirements. For instance, it specifies that the document must contain the seller's business address, rather than just an address. Additionally, it must specify whether the seller is a limited liability company or partnership, rather than just an individual, partnership, or corporation.

By law, a number of business opportunities are exempt from complying with certain requirements under the Act. The bill eliminates the exemption as to the laws:

1. requiring sellers to file with the commissioner an irrevocable consent appointing the commissioner as the seller's attorney for service of process;

2. prohibiting a person from representing that the business opportunity will provide income or earning potential of any kind unless the seller has documented data to substantiate the claims of income or earnings potential and discloses this data to the prospective purchaser-investor at the time the representations are made, and

3. prohibiting the use of the trademark, service mark, trade names, logotype, advertising or other commercial symbol of any business which does not either control the ownership interest in the seller or accept responsibility for all representations made by the seller in regard to the business opportunity, unless it is clear from the circumstances that the owner of the commercial symbol knows of and consents to the use and is not involved in the sale of the business opportunity.

By law, the burden of proving an exemption is on the person claiming it. The bill expands this requirement to cover any exclusion or exception from a definition.

The bill adds to the circumstances under which the commissioner can issue a stop order relative to a business opportunity. The bill allows the commissioner to issue stop orders relative to business opportunity registrations if he finds that the seller, or any partner, officer or director, any person occupying a similar status or performing similar functions, or any person directly or indirectly controlling the seller or charged with responsibility for the seller's business activities:

1. has, at any time during the previous 10 fiscal years, been convicted of a felony or pleaded nolo contendere to a felony charge or a misdemeanor that involved fraud, provided any denial, suspension or revocation for this reason must be in accordance with the statutes governing the denial of employment based on a prior conviction;

2. is permanently or temporarily enjoined by any court of competent jurisdiction from engaging in or continuing any conduct or practice involving business opportunity or securities activities, the seller-purchaser-investor relationship or fraudulent conduct;

3. is the subject of a cease and desist order, consent order or order imposing fines entered by the commissioner within the past 10 years and involving a violation of the Act or the Uniform Securities Act; or

4. is the subject of any state or federal agency order or any securities or commodities self-regulatory organization sanction entered within the past 10 years and involving (a) business opportunity activities or the seller-purchaser-investor relationship, or (b) fraud, including a violation of any business opportunity law, franchise law, securities law or unfair or deceptive practices law, embezzlement, fraudulent conversion, misappropriation of property or restraint of trade.

The commissioner can also issue a stop order if he finds that (1) the seller's enterprise or method of business, or that of the business opportunity, includes or would include activities which are illegal where performed; (2) the business opportunity or the offering of the business opportunity has worked or tended to work a fraud upon purchaser-investors or would do so; or (3) the seller's literature or advertising is misleading, incorrect, incomplete, or deceptive.

By law, a stop order cannot generally be entered without notice, opportunity for hearing, and the issuance of written findings of fact and conclusions of law by the commissioner. However, the bill provides that if the commissioner has entered a stop order denying effectiveness to a business opportunity under this provision, the commissioner, in his discretion, can deny any subsequent application for registration of the business opportunity without the notice, opportunity for a hearing and written findings and conclusions, if the commissioner makes the findings necessary to grant a stop order and notifies the seller in writing of the denial.

By law, whenever it appears, as the result of an investigation, that a person has violated the Act or the Uniform Securities Act or any regulation, rule or order adopted or issued under those acts, the commissioner can send a notice to the person by certified mail or by any express delivery carrier that provides a dated delivery receipt. The notice must include, among other things, the time and place for the hearing. The hearing must be fixed for a date not earlier than 14 days after the notice is mailed. The bill instead requires the notice to include (1) a statement indicating that the person may file a written request for a hearing on the matters asserted not later than 14 days after receipt of the notice and (2) the time and place for the hearing. The bill specifies that notice must be deemed received on the earlier of the actual receipt date or seven days after the notice was sent. The commissioner does not have to hold the hearing unless it is requested in the specified time period.

The bill also adds that the notice under the Uniform Securities Act can be provided by certified, rather than just registered, mail.

By law, the commissioner can deny, suspend, or revoke a registration under the Uniform Securities Act if he makes certain findings. Among other reasons, he can take such action if the person has been convicted of a misdemeanor involving, or is enjoined from engaging in, the securities or commodities business. The bill expands this to include a business involving investments, franchises, business opportunities, insurance, banking, or finance.

The commissioner can also take these actions if a person is subject to certain sanctions. The bill eliminates from consideration an order by the securities administrator of a Canadian province or territory and adds a denial, suspension, revocation or other sanction issued by the commissioner or any other state or federal financial services regulator based upon nonsecurities violations of any state or federal law under which a business involving investments, franchises, business opportunities, insurance, banking, or finance is regulated.