While Utah"s mortgage licensing laws may not apply to wholesale lenders, hard-money lenders, commercial property lenders or real estate lenders, other state laws may apply.  Any lender whose capital comes from investors must comply with securities laws.  This may require licensing as a securities broker-dealer and registering the investment program with the Utah Division of Securities.

Definition

A security is defined in Section 61-1-13, Utah Code Annotated. A security may be in the form of lending agreements such as any:

• note;
• bond;
• debenture;
• evidence of indebtedness;
• certificate of interest or participation in any profit-sharing agreement;
• investment contract.

REGISTRATION

Prior to offering or selling a security in Utah, the security or transaction must be:

• Registered;
• Exempt from registration; or
• Be a federal covered security for which a notice filing has been made (if required by rule). See section 61-1-7, Utah Code Annotated.

Securities regulations require full and fair disclosure of all significant, important, or material information so that investors have the opportunity to make informed investment decisions.  This disclosure is commonly made through a prospectus or offering circular.  Even if a security or transaction is exempt from the registration requirements, the security or transaction must provide full disclosure in compliance with the anti-fraud provisions contained in section 61-1-1 of the Utah Uniform Securities Act and the licensing provisions for persons effecting the transactions found in section 61-1-3.

LICENSING

Broker-Dealer

A securities "Broker-Dealer" is defined, in section 61-1-13(1)(c)(i) of the Utah Uniform Securities Act ("Act"), as "any person engaged in the business of effecting transactions in securities for the account of others or for his own account."  The definition contains exclusions for certain persons which are found in the above-mentioned section of the Act.

To effect securities transactions involving debt instruments from Utah or in Utah as a broker-dealer one must be licensed with the Utah Division of Securities.  The business entity must license as a broker-dealer and the individual sales persons must license as the broker-dealer"s agents.

Broker-Dealer Agents

An "Agent" is defined, in section 61-1-13(1)(b)(i) of the Act as "any individual other than a broker-dealer who represents a broker-dealer or issuer in effecting or attempting to effect purchases or sales of securities."  Some exclusions from the definition are outlined in the above-mentioned section of the Act.  In limited circumstances, an issuer"s securities may be sold by an issuer agent.

ENFORCEMENT

Upon discovering a violation, the Division may bring a civil or adminitrative action, or refer the matter for criminal prosecution.  The Division has brought a number of enforcement actions against people soliciting investments for real estate lending.

Criminal penalties: Any violation of the securities laws can be prosecuted as a felony. Penalties can include time in prison and thousands of dollars in fines and restitution. See section 61-1-21, Utah Code Annotated.

Civil or Administrative enforcement penalties: The Division may file a civil lawsuit seeking an injunction, fines, and restitution.  An administrative proceeding may result in the violator being ordered to pay a fine, ordered to cease and desist from violating the law, and barred from engaging in the securities business in the future.

Private litigation: Any person who buys a security from someone who is required to be licensed, but is not licensed, can sue the seller and get a full refund of the purchase plus interest.  See section 61-1-22, Utah Code Annotated.