Minutes - November 13, 2018

A meeting of the State Securities Board was held on November 13, 2018, in Room 320, Thomas Jefferson Rusk State Office Building, at 10:00 a.m. Those present were: Beth Ann Blackwood, Chair; E. Wally Kinney, Member; Member; G. Alan Waldrop, Member; Miguel Romano, Jr., Member; Travis J. Iles, Securities Commissioner; Clinton Edgar, Deputy Commissioner; Tommy Green, Director, Inspections and Compliance Division; Derek Lauterjung, Director, Staff Services Division; Joseph J. Rotunda, Director, Enforcement Division; Marlene K. Sparkman, General Counsel; Robert Elder, Communications and Investor Education; Tina Lawrence, Assistant Director, Enforcement Division; Emily Diaz, Assistant Director, Registration Division; Shaun Yarroll, Assistant Director, Registration Division; Cheryn Netz, Assistant General Counsel; and Katy Miner, Legal Assistant, Enforcement Division. Also attending were Kim Lopez-Gonzales and Christopher Smith.

Chair Blackwood called the meeting to order at 10:14 a.m.

Minutes of the May 16, 2018, meeting were approved.

The Board voted to excuse Member Appleby’s absence from the meeting.

The Board voted to adopt the following proposed rules:

1.           Amendment to §109.13(k), concerning limited offering exemptions, to limit its applicability to SEC Rule 506 offerings and to remove the portions applicable solely to SEC Rule 505 offerings in light of the SEC’s repeal of Rule 505.

2.           Amendment to §114.4(b) and (d), concerning filings and fees, to update a cross-reference and reflect that the EFD System is operational.

3.           Amendment to §133.33(c), concerning uniform forms accepted, required, or recommended, to update a cross-reference and form name.

4.           Amendment to §115.1, concerning general provisions, to update the definition of “crowdfunding portal,” update a cross-reference to a federal statute, and to better align the restricted registration categories with the specialized knowledge examinations administered by FINRA.

5.           Amendment to §115.3(a) and (b), concerning examination, to reflect changes in FINRA examinations and better coordinate the required examinations, especially the specialized knowledge ones, with those administered by FINRA.

6.           Amendment to §113.5(c), concerning financial statements, to add the new crowdfunding rule (§139.26) to the list of types of prior securities offerings that would not disqualify an issuer from being eligible to file reviewed financial statements in a later registered offering.

The Board voted to publish for public comment the following new rule proposals:

1.           Repeal of §139.25, Intrastate Crowdfunding Exemption.

2.           Repeal of Form 133.17, Crowdfunding Exemption Notice, used to claim the exemption in §139.25.                                          

3.           Amendment to §113.14(b), concerning statements of policy, to update the rule to reflect recent revisions to the NASAA Statements of Policy for  Corporate Securities Definitions; Loans and Other Material Transactions; Underwriting Expenses, Underwriter’s Warrants, Selling Expenses and Selling Security Holders; and Unsound Financial Condition; and to correct the placement of an apostrophe.

4.           Amendment to §101.6, concerning the historically underutilized business program, to update the cross-reference to the Comptroller’s rules.

5.           Amendment to §103.5, concerning petitions, to include a reference to the Texas Government Code and to collect information on the economic, fiscal, employment, and cost impact of the proposal, to the extent that such information is available to the petitioner.

6.           Amendment to §104.5, concerning registration of dealers and investment advisers-review of applications, to update the procedures to adjust for the recent reorganization of the Registration Division and to more closely mirror the review process in §104.4.

The Board voted to re-adopt the following rule chapters:

1.           Chapter 101. General Administration.

2.           Chapter 103.  Rulemaking Procedure.

3.           Chapter 104.  Procedure for Review of Applications.

The Board received information on a prospective grant for $31,550.00 (for updating the Texas Investor Guide: Strategies for Investing Wisely and Avoiding Fraud; translation of the Guide into Spanish; and printing of 7,000 copies of the English version) that is pending before the Investor Protection Trust.  The Board also acknowledged and accepted two grants from the Investor Protection Trust for investor education purposes as set forth in the grant proposals.  The first was for $9,680 (for printing 2,500 additional copies of the 2018 Investor Guide) and the second was for $6,000 (to develop the Investor Guide to Cryptocurrencies).

The Audit Committee reported on the Agency’s Internal Audit Report for Fiscal Year 2018, and the Board reviewed the Report.  Upon the recommendation of the Audit Committee, the Board voted to retain Garza/Gonzales & Associates as the internal auditor for FY 2019.

The Commissioner discussed the Sunset Advisory Commission Staff Report on the State Securities Board with the Board and the suggested response by the Agency to each recommendation.

Before the end of the discussion of the Sunset Report, Chair Blackwood announced that Member Romano needed to leave the meeting early, and therefore the Board needed to move Items 10 and 11 of the Agenda up so that Member Romano could be present. The Board retired to executive session at 11:08 a.m. to discuss the performance review of the Securities Commissioner pursuant to the exception granted by Section 551.074 of the Texas Government Code, Open Meetings Act.

Following the executive session, the Board reconvened the open meeting and noted approval of the Commissioner’s job performance.

The Commissioner resumed his discussion of the Sunset Report with the Board and discussed the remarks that the Staff plans to submit to the Commission by the due date of November 26, 2018. He stated that the remarks would provide commentary or clarification on certain items of the Report.

The Commissioner gave an update on the Agency’s Legislative Appropriations Request and discussed the upcoming legislative session.

The Commissioner gave a report on the Agency’s budget and performance measures.

A draft resolution honoring Letha L. Sparks, former Financial Examiner, was provided to the Board. The Board voted to adopt the resolution and directed that the resolution be included in the Minutes. The resolution reads as follows:

WHEREAS, The State Securities Board in Regular Session on November 13,  2018, in Austin, Texas, does hereby take note the recent retirement from the Agency of Letha Sparks on June 30, 2018, after having served the public of Texas for over 20 years as an Investigator/Financial Analyst in the Enforcement Division of the State Securities Board; and

WHEREAS, Those who worked with Ms. Sparks know her to be an exceptionally dedicated employee whose passion for the enforcement work of the Agency has left a lasting impression upon the Board and the Staff at the Agency through her insistence upon, and personal example of professionalism and expertise in continually finding creative solutions to complicated matters by taking the initiative to ensure that she performs the most sophisticated and professional analysis on the most financially complex of investment schemes; and

WHEREAS, Ms. Sparks has led by both example and through teaching and has been instrumental in the development of her fellow examiners though her sincere willingness to help and, by doing so, has and will continue to elevate the work product of the Agency by having served as a distinguished mentor to the next generation of examiners by passing on her investigative experience and knowledge with her uniquely infectious and contagious enthusiasm; and

WHEREAS, Ms. Sparks’ work and testimony has been central to some of the most challenging of the Agency’s administrative, civil, and criminal law enforcement actions, and many of those successful prosecutions would not have come to fruition if not for her involvement, her efforts have made a profound impact in preventing criminals, thieves, and crooks from stealing an incalculable amount of money from an untold number of citizens by allowing the Agency to more readily combat fraudulent activities in a real-time fashion and protect the public from the risk of loss associated with ongoing illegal activity; and

NOW, THEREFORE, BE IT RESOLVED that the Members of the State Securities Board, the Securities Commissioner, and all personnel of the State Securities Board hereby acknowledge that it has been a privilege of the highest order to work alongside “Lethal” Letha Sparks and that the citizens of this State owe a lasting debt of gratitude for her outstanding and distinguished service at the State Securities Board;

AND BE IT FURTHER RESOLVED that this Resolution be included in the official minutes of the November 13, 2018, meeting of the State Securities Board.

The meeting was then adjourned.