By Tim Leeds
State Auditor John Morrison was in Havre last week to tell people about ways to raise capital for business ventures.
Morrison began making presentations about how to legally sell securities last summer in five Montana communities. He said several million dollars have been raised through securities sales by the people who attended those presentations.
Most of the people attending the Havre presentation were elected officials, former elected officials and representatives of Bear Paw Development Corp.
Morrison said part of his job is to regulate securities. Another part is to encourage Montanans to raise capital to start or expand businesses. One way that can be done is by selling securities.
Securities sales are sales of ownership of companies or debt securities to secure loans for the companies.
"We keep an eye on those people raising capital," he said. " It's important for them to know what the rules are."
Deputy Auditor Jill Gerdrum said people selling securities sometimes inadvertently break the law.
"It's simply because they're unaware of what the regulations are," she said.
Both the securities sold and the people selling them have to be registered with the auditor's office. But exemptions are available in certain circumstances.
Gerdrum explained two of the exemptions. If the company offers no more than 10 sales of the security, the seller receives no commission and the buyer is buying for investment purposes only, the sales do not have to be registered with the auditor's office.
The limitation is on offers, not sales. If five people are offered the security but decline, then the security is offered and sold to six more people, the company can't take the exemption. If the buyer is using the security for something other than investment purposes, like for a tax shelter, the exemption can't be used.
Gerdrum said even if people think they can use the 10-offer exemption, she recommends they contact the auditor's office first.
A second exemption may be useable if 25 or fewer offers are made. The requirements are the same as the 10-offer exemption, except that the security must be registered with the auditor's office and any required fees paid before the offers are made.
Some securities sales are eligible for other exemptions.
Morrison said people need to understand that if offers are made outside of Montana, regulations in that state and federal regulations must also be followed.
Gerdrum said people offering securities must also make full disclosure to the people they are offered to. The required disclosures include a description of the security, a description of the company offering the security, names and salaries of the company's officers, an estimate of the proceeds expected from the offering, and the previous experience of the management of the company.
The auditor's office recommends contacting an attorney before making any securities offers, and contacting the auditor's office. The rules and regulations covering securities sales can be very complicated, Gerdrum said.
Morrison said his office has an extensive staff to help people with questions or problems about selling securities, concerns that buying a security may be illegal, and many other areas.
The Montana State Auditor and Securities Commissioner office can be reached at (800) 332-6148.
On the Net: Montana State Auditor's Office: www.state.mt.us/sao