Enforcement - - CA Financial

Section § 3401

This section defines what counts as an 'enforcement measure' within the context of digital financial asset activities. It includes actions like suspending or revoking licenses, issuing cease and desist orders, and requesting the court to appoint a receiver for someone's assets. The department can also ask the court for different levels of injunctive relief, assess penalties, and recover funds to compensate residents who were harmed. Additional measures include setting conditions on digital financial activities and seeking restitution for financial harm caused by violations.

For the purpose of this chapter, “enforcement measure” means an action that includes, but is not limited to, all of the following:

(a) Suspend or revoke a license under this division.

(b) Order a person to cease and desist from doing digital financial asset business activity with, or on behalf of, a resident.

(c) Request the court to appoint a receiver for the assets of a person doing digital financial asset business activity with, or on behalf of, a resident.

(d) Request the court to issue temporary, preliminary, or permanent injunctive relief against a person doing digital financial asset business activity with, or on behalf of, a resident.

(e) Assess a penalty under Section 3407.

(f) Recover on the security under Section 3207 and initiate a plan to distribute the proceeds for the benefit of a resident injured by a violation of this division, or law of this state other than this division that applies to digital financial asset business activity with, or on behalf of, a resident.

(g) Impose necessary or appropriate conditions on the conduct of digital financial asset business activity with, or on behalf of, a resident.

(h) Seek restitution on behalf of a resident if the department shows economic injury due to a violation of this division.

enforcement measure suspend license revoke license cease and desist order digital financial asset court receiver injunctive relief penalties restitution economic injury residents security recovery violation compensation digital financial asset business activity resident protection

(Added by Stats. 2023, Ch. 792, Sec. 1. (AB 39) Effective January 1, 2024.)

Section § 3403

This California law allows the state to take action against companies or individuals who are involved in digital financial asset activities, like cryptocurrency, if they commit certain violations. The violations include breaking state laws, not cooperating with investigations, engaging in dangerous or deceptive practices, committing fraud, or improperly using funds. Additionally, if they face actions from other state or federal agencies, are convicted of certain crimes, become insolvent, or make false statements to the state, they might also face enforcement. The state can extend deadlines or waive penalties under specific conditions, and proceedings are governed by the Administrative Procedure Act.

(a) The department may take an enforcement measure against a licensee or person that is not a licensee but has engaged, is engaging, or is about to engage in digital financial asset business activity with, or on behalf of, a resident in any of the following instances:

(1) The licensee or person materially violates this division, a rule adopted or order issued under this division, or a law of this state other than this division that applies to digital financial asset business activity of the violator with, or on behalf of, a resident.

(2) The licensee or person does not cooperate substantially with an examination or investigation by the department, fails to pay a fee, or fails to submit a report or documentation.

(3) The licensee or person, in the conduct of its digital financial asset business activity with, or on behalf of, a resident, has engaged, is engaging, or is about to engage in any of the following:

(A) An unsafe or unsound act or practice.

(B) An unfair or deceptive act or practice.

(C) Fraud or intentional misrepresentation.

(D) Misappropriation of legal tender, a digital financial asset, or other value held by a fiduciary.

(4) An agency of the United States or another state takes an action against the licensee or person, which would constitute an enforcement measure if the department had taken the action.

(5) The licensee or person is convicted of a crime related to its digital financial asset business activity with, or on behalf of, a resident or involving fraud or felonious activity that, as determined by the department, makes the licensee or person unsuitable to engage in digital financial asset business activity.

(6) Any of the following occurs:

(A) The licensee or person becomes insolvent.

(B) The licensee or person makes a general assignment for the benefit of its creditors.

(C) The licensee or person becomes the debtor, alleged debtor, respondent, or person in a similar capacity in a case or other proceeding under any bankruptcy, reorganization, arrangement, readjustment, insolvency, receivership, dissolution, liquidation, or similar law, and does not obtain from the court, within a reasonable time, confirmation of a plan or dismissal of the case or proceeding.

(D) The licensee or person applies for, or permits the appointment of, a receiver, trustee, or other agent of a court for itself or for a substantial part of its assets.

(7) The licensee or person makes a material misrepresentation to the department.

(b) On application and for good cause, the department may do either of the following:

(1) Extend the due date for filing a document or report under paragraph (2) of subdivision (a).

(2) Waive, to the extent warranted by circumstances, including a bona fide error notwithstanding reasonable procedures designed to prevent error, an enforcement measure issued for a violation described by paragraph (2) of subdivision (a) if the department determines that the waiver will not adversely affect the likelihood of compliance with this division.

(c) In an enforcement action related to operating without a license under this division, it is a defense to the action that the person has in effect a customer identification program reasonably designed to identify whether a customer is a resident that failed to identify the particular customer as a resident.

(d) A proceeding under this division is subject to the Administrative Procedure Act, as described in Section 11370 of the Government Code.

digital financial asset cryptocurrency regulation enforcement measures unsafe practices unfair practices deceptive practices fraudulent activity misappropriation cooperation with investigations agency actions criminal conviction insolvency material misrepresentation compliance waivers Administrative Procedure Act

(Added by Stats. 2023, Ch. 792, Sec. 1. (AB 39) Effective January 1, 2024.)

Section § 3405

The department generally must give notice and a chance for a hearing before taking enforcement actions. However, in urgent cases, it can take action without prior notice, but a quick hearing must be offered afterward unless the person involved waives it. This also applies when action needs to be taken before a hearing can occur. If a person involved in digital financial asset activities doesn't ask for a hearing in time, the department can proceed without one.

(a) Except as provided in subdivision (b), the department may take an enforcement measure only after notice and opportunity for a hearing as appropriate in the circumstances.

(b)

(1) (A) The department may take an enforcement measure, other than the imposition of a civil penalty under Section 3407, without notice if the circumstances require action before notice can be given.

(B) A person subject to an enforcement measure pursuant to this paragraph shall have the right to an expedited postaction hearing by the department unless the person has waived the hearing.

(2)

(A) The department may take an enforcement measure, other than the imposition of a civil penalty under Section 3407, after notice and without a prior hearing if the circumstances require action before a hearing can be held.

(B) A person subject to an enforcement measure pursuant to this paragraph shall have the right to an expedited postaction hearing by the department unless the person has waived the hearing.

(3) The department may take an enforcement measure, other than the imposition of a civil penalty under Section 3407, after notice and without a hearing if the person conducting digital financial asset business activity with, or on behalf of, a resident does not timely request a hearing.

enforcement action notice requirement opportunity for hearing expedited postaction hearing waiver of hearing urgent enforcement prior notice exception digital financial asset business timely hearing request postaction rights financial enforcement measures non-civil penalty actions Section 3407 exception department enforcement procedures resident involvement

(Added by Stats. 2023, Ch. 792, Sec. 1. (AB 39) Effective January 1, 2024.)

Section § 3407

If someone who isn't licensed does digital financial activities with Californians against the rules, they could face a daily fine up to $100,000. If someone who is licensed breaks the rules in a major way, they might be fined up to $20,000 per day or per incident. Fines keep adding up until the violation stops.

(a) If a person other than a licensee has engaged, is engaging, or is about to engage in digital financial asset business activity with, or on behalf of, a resident in violation of this division, the department may assess a civil penalty against the person in an amount not to exceed one hundred thousand dollars ($100,000) for each day the person is in violation of this division.

(b) If a licensee or covered person materially violates a provision of this division, the department may assess a civil penalty in an amount not to exceed twenty thousand dollars ($20,000) for each day of violation or for each act or omission in violation.

(c) A civil penalty under this section continues to accrue until the date the violation ceases.

digital financial assets civil penalty unlicensed activity licensee violation daily fine material violation financial regulations California resident financial penalties unlicensed operations digital finance compliance department assessment violation accrual monetary penalty finance regulation enforcement

(Added by Stats. 2023, Ch. 792, Sec. 1. (AB 39) Effective January 1, 2024.)

Section § 3409

This section describes how the revocation or suspension of a financial license is communicated and becomes effective. A license is revoked or suspended one day after the notice is sent to the licensee's provided address. For suspensions and cease and desist orders, they stay in effect until an official order is made, a court modifies it, or a date specified by the department is reached.

If a licensee isn't aware of the notice due to not receiving it immediately, the department may take the delay into account when determining penalties.

(a) Revocation of a license under this division is effective against a licensee one day after the department sends notice in a record of the revocation to the licensee by a means reasonably selected for the notice to be received by the recipient in one day to the address provided for receiving communications from the department.

(b) Suspension of a license under this division or an order to cease and desist is effective against a licensee or other person one day after the department sends notice in a record of the suspension or order to the licensee or other person by a means reasonably selected for the notice to be received by the recipient in one day to the address provided for receiving communications from the department or, if no address is provided, to the recipient’s last known address. A suspension or order to cease and desist remains in effect until the earliest of the following:

(1) Entry of an order by the department under the Administrative Procedure Act, as described in Section 11370 of the Government Code.

(2) Entry of a court order setting aside or limiting the suspension or order to cease and desist.

(3) A date specified by the department.

(c) If, without reason to know of the department’s notice sent under this section, a licensee or other person does not comply in accordance with the notice until the notice is actually received at the address provided, the department may consider the delay in compliance in imposing a sanction for the failure.

license revocation license suspension financial license cease and desist order communication method notice period Administrative Procedure Act court order compliance delay sanctions for non-compliance departmental notice recipient's address effective date means of delivery

(Added by Stats. 2023, Ch. 792, Sec. 1. (AB 39) Effective January 1, 2024.)

Section § 3411

This law allows the department to make an agreement with someone regarding enforcement actions. This agreement can state that the person involved doesn't have to admit to any facts.

The department may enter into a consent order with a person regarding an enforcement measure. The order may provide that it does not constitute an admission of fact by a party.

consent order enforcement measure agreement admission of fact department authority enforcement actions party agreement non-admission settlement administrative agreement

(Added by Stats. 2023, Ch. 792, Sec. 1. (AB 39) Effective January 1, 2024.)

Section § 3413

This law gives the commissioner ongoing power to take certain actions for the public's benefit. They can do this even if there is no license application, if a license hasn't been granted, or if it has been given up, suspended, or taken away.

Whenever the commissioner deems it necessary for the general welfare of the public, the commissioner has continuous authority to exercise the powers set forth in this division whether or not an application for a license has been filed with the commissioner, any license has been issued, or if issued, has been surrendered, suspended, or revoked.

commissioner's authority public welfare continuous authority license application license issuance license surrender license suspension license revocation general welfare powers of commissioner regulatory authority enforcement powers public interest oversight licensing requirements

(Added by Stats. 2023, Ch. 792, Sec. 1. (AB 39) Effective January 1, 2024.)

Section § 3415

This law section clarifies that residents cannot use this chapter to start a lawsuit directly. However, whatever duties and responsibilities are mentioned in this chapter must still be followed along with any others required by different laws. It also mentions that residents can still take legal action if it's related to rights under Section 3503.

(a) This chapter shall not be construed to provide a private right of action to a resident.

(b) The duties and obligations imposed by this chapter are cumulative with any other duties or obligations imposed under any other law, and shall not be construed to relieve any party from any duties or obligations imposed under any other law.

(c) This section does not preclude an action by a resident to enforce rights under Section 3503.

private right of action resident enforcement duties and obligations cumulative obligations enforce rights Section 3503 legal action preclusion residential legal recourse cumulative duties clarification compliance with other laws

(Added by Stats. 2023, Ch. 792, Sec. 1. (AB 39) Effective January 1, 2024.)

Digital Financial Assets Businesses

Chapter 4Enforcement

Section § 3401

Section § 3403

Section § 3405

Section § 3407

Section § 3409

Section § 3411

Section § 3413

Section § 3415

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