CHAPTER 4. Enforcement [3401 - 3415]
( Chapter 4 added by Stats. 2023, Ch. 792, Sec. 1. )
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.
(Added by Stats. 2023, Ch. 792, Sec. 1. (AB 39) Effective January 1, 2024.)
(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.
(Added by Stats. 2023, Ch. 792, Sec. 1. (AB 39) Effective January 1, 2024.)
(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.
(Added by Stats. 2023, Ch. 792, Sec. 1. (AB 39) Effective January 1, 2024.)
(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.
(Added by Stats. 2023, Ch. 792, Sec. 1. (AB 39) Effective January 1, 2024.)
(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.
(Added by Stats. 2023, Ch. 792, Sec. 1. (AB 39) Effective January 1, 2024.)
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.
(Added by Stats. 2023, Ch. 792, Sec. 1. (AB 39) Effective January 1, 2024.)
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.
(Added by Stats. 2023, Ch. 792, Sec. 1. (AB 39) Effective January 1, 2024.)
(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.
(Added by Stats. 2023, Ch. 792, Sec. 1. (AB 39) Effective January 1, 2024.)