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Overview
10% of the Series 63 examination (6 questions) covers securities registration requirements under the Act. Since this is a small area of the test and the content is quite detailed, please budget study time accordingly. Under the provisions of the Uniform Securities Act: unless an exemption is available; or unless the security is a "federal covered security"; then the Act requires that these securities be registered in the State.
Definition of a Security "Securities" Must Be Registered in the State It is critical to understand when an offering is considered to be a "security." If an offering is considered to be a security, then it must be registered in the state before it can be offered to the public (ignoring any exemptions from registration that might be available - these are discussed later). If an investment is not considered to be a security, then it does not fall under State registration requirements. Definition of a "Security" The basic definition of a security is any investment in a common enterprise for profit, with management performed by another party. Falling under this basic definition are: Corporate Issues Transferable Shares, Common and Preferred Stock. Notes, Bonds, Debentures. Treasury Stock. Collateral Trust Certificates, where marketable securities are the collateral backing the certificate. Equipment Trust Certificates, where equipment owned by the issuer is the collateral backing the certificate. Real Estate Investment Trust Certificates, where real estate and mortgages are the principal investments. Certificate of Deposit for a Security, such as an American Depositary Receipt, which evidences that a foreign security is on deposit in an American bank branch overseas. Collateralized Mortgage Obligations ("CMOs"), where conventional mortgages are the collateral backing the obligation. Structured Securities, such as structured notes issued by investment banks and financial institutions. These are bond-like obligations that give a return linked to an equity index subject to a cap and a floor. There is no collateral backing these securities - they are only backed by the promise to pay. Rights and Warrants. Voting Trust Certificates, which are special corporate securities used in proxy fights. Shareholders who wish to remove the existing management deposit their shares into a voting trust. If enough shares are deposited, the existing management is replaced by the new majority shareholders. Government Issues US Government Obligations (such as Treasury Bonds). Government Agency Obligations (such as Government National Mortgage Association "GNMA" Pass-Through Certificates and Federal National Mortgage Association "FNMA" issues). Obligations of States and Political Subdivisions - that is, municipal obligations. For example, a township is a political subdivision. Foreign Government Obligations. For example, Canadian Government bonds are a foreign government obligation
Investment Company Issues Open End Fund Shares, commonly known as "mutual fund" shares. These are redeemable with the sponsor. Closed End Fund Shares, commonly known as "publicly traded funds." These are negotiable securities and cannot be redeemed. Investment Contracts, such as front-end load and spread load contractual plans. Unit Investment Trusts. Variable Annuity Contracts. Options Clearing Corporation Issues Option Contracts on Stocks, Debt Instruments, Indexes and Foreign Currencies (Put and Call Options). Tax Sheltered Investment Issues Pre-organization certificates (such as a subscription agreement for a limited partnership). (With this type of security, the purchaser fills out basic information and forwards it with a check to the general partner. If the general partner accepts the "subscription," the individual becomes a limited partner.) Certificates of Interest in a Profit Sharing Arrangement (such as an accepted limited partner subscription agreement). Fractional interests in oil, gas, or mining ventures. Real Estate Condominiums. Farming, Planting, and Breeding Programs. Third Party Manager Needed for These to Be Considered Securities Note: These programs are considered securities when a third party manages the enterprise. If the investor is the manager, these are considered to be a personal business and are NOT securities. Other Issues Considered to Be Securities Whiskey Warehouse Receipts (which may simply be referred to as "warehouse" receipts). Merchandising Marketing Schemes. Commodity Option Contracts. Note: These have been defined as securities because of past abuses in selling such interests, so State regulators brought them under their control to protect investors. Issues SPECIFICALLY EXCLUDED from the Definition of a Security Insurance or Endowment Policies or Contracts. Fixed Annuity Contracts. Ownership Interests in Credit Unions (which are non-profit organizations). Commodities Futures Contracts. Interests in both contributory and non-contributory retirement plans, such as pension plans and IRAs. However, the specific investments held within these vehicles are defined as securities. Thus, if a person is giving advice about fixed annuity contracts (which are not defined as a security); then this person is not defined as an investment adviser that must register in that State. However, if a person is giving advice about variable annuity contracts (which are defined as a security), then this person must register in the State, (unless they are either excluded from the definition of an investment adviser; or are exempt from registration).
Definition of a Federal Covered Security The Uniform Securities Act defines a "Federal covered security" as one that is covered under Section 18b of the Securities Act of 1933 (Federal legislation). Section 18b of the Securities Act of 1933 was incorporated as part of the National Securities Markets Improvement Act of 1996 (NSMIA). Federal Covered Securities The intent here is that if a security is defined as a "federal covered security," then registration in the State is not required (only registration with the SEC is required). Thus, duplicate registration of securities at both the Federal and State level is avoided. Currently, a Federal covered security is defined as one that is: NYSE, AMEX (NYSE American) or Nasdaq listed on the New York Stock Exchange, American Stock Exchange (which has been renamed the NYSE American, but this is unlikely to be reflected on the exam) or Nasdaq, or is a senior security (preferred stock or bonds) of such an issuer; listed on a national securities exchange that has substantially similar listing standards to those exchanges listed above; Investment Company Issues issued by a registered investment company; Sold to Qualified (Wealthy) Purchasers sold to qualified purchasers (basically a person who owns investments of at least $5,000,000 or investment managers with at least $25,000,000 of investment assets under management); or Sold in Transactions Exempt Under '33 Act sold in exempt transactions specified by the Securities Act of 1933, such as Regulation D private placements. Thus, listed securities and investment company securities are only required to be registered with the SEC; they are not required to be registered separately in each State. In addition, securities sold to truly wealthy investors in certain exempt transactions are not required to be registered with the SEC; nor can they be required to be registered in the State. OTC Markets Issues Must Be State-Registered What this means in the "real world" is that the securities that are still subject to State registration requirements (in addition to possible Federal registration with the SEC) are considered "unlisted securities" - such as stocks included in the Pink OTC Markets. These are typically "penny" stocks that State regulators are concerned about, since there have been many "scams" with these over the years.
Definition of Sale, Offer to Sell, or Offer to Purchase The Act devotes a lengthy description to defining a "sale" or an "offer to sell." It is important to know this definition, because an "offer to sell" a security cannot be made unless that security has been registered in the State, or unless an exemption is available. Under this heading, the Act defines the following: Sale The Act defines a "sale" as a contract to sell or dispose of a security, or an interest in a security, for value. Offer to Sell The Act defines an "offer to sell" as any attempt or offer to dispose of a security, or a solicitation of an offer to buy a security or an interest in a security, for value. Offer to Purchase An "offer to purchase" is defined as an attempt or offer to obtain a security, or a solicitation of an offer to sell a security or an interest in a security, for value. Using these broad definitions, the following specific rules apply: Gift of Assessable Stock Is Considered to Be a Sale A gift of an "assessable" security, where the issuer can assess the owner for additional funds is considered a sale since the donor is relieved of any future required payments. (Limited partnership interests are generally “assessable” by the general partner.) Securities Given as a Bonus Are Part of a Sale A security which is given as a "bonus" because of the purchase of securities, or other items, is considered to be part of that purchase, and hence to have been offered and sold for value. Offer or Sale of Warrants, Rights, and Convertible Securities Is Considered to Be an Offer or Sale of the Underlying Stock A sale or offer of rights or warrants on an underlying security; or the sale or offer of a convertible security, is considered to be an offer of the underlying security (hence, the underlying security would have to be registered under the Act to offer the warrants or rights, unless an exemption exists). Specifically EXCLUDED from the definition of a "sale" or "offer to sell" are: Dividends paid to shareholders, whether in the form of cash, stock or property (for example, Proctor and Gamble, in the past, has sent its shareholders a "variety" package of its soap products. This is a "property dividend"). A "security interest" created as the result of a loan (for example, when a loan is made, the lender may take a "security interest" in the property of the borrower, as collateral for the loan). Another wording for this is a "bona fide pledge for a loan." A corporate reorganization caused by a vote of the shareholders resulting in a merger; consolidation; reclassification of securities; or sale of corporate assets in consideration for the issuance of securities of another corporation. For example, if a corporation's shareholders approve a merger, the exchange of the shares of the new company for the old company is not defined as an "offer to sell" the newly issued securities, and registration in the State is not required for the newly issued securities. (Please note that this exclusion would not apply to a cash tender offer for a corporation's securities; it only applies when new securities are being issued in consideration for the old securities.) A judicially approved corporate reorganization, where a new security is issued in exchange for an old security. For example, a corporation that is in bankruptcy may offer its bondholders an "exchange" whereby the corporation will give the bondholder an equity security (usually of greater value) in exchange for the bonds. In this way, the corporation can reduce its leverage, and has a better chance of emerging from bankruptcy. (Please note that this exclusion only applies to "judicially approved" reorganizations (e.g., bankruptcies). It does NOT apply to voluntary reorganizations, such as those carried out through a tender offer or exchange offer.)
Other Definitions GUARANTEED: Guaranteed as to payment of interest, dividends, or principal by someone other than the issuer. ADMINISTRATOR: The Uniform Securities Act provides that each State has an administrator who "administrates" the Act. The Administrator can be the State Securities Commission, commissioner, or secretary. Note that in most States, the Administrator reports to the Secretary of State or is part of the Secretary of State's department. In a minority of States, the Administrator reports to the Department of Commerce, Corporations, Business Services, or a State Securities Commission, whose members are appointed by the Governor. STATE: Any State, territory, or possession of the United States, District of Columbia, and Puerto Rico.
Registration of Securities The Act states that it is unlawful for any person to offer or sell any security in a State unless the: security is registered in the State under the Act; or security is a federal covered security; or security or transaction is EXEMPT under the Act (these are exemptions provided by the Uniform Securities Act - NOT the Securities Act of 1933. The Securities Act of 1933 is Federal legislation. The Uniform Securities Act is State legislation.) Registration Effective for 1 Year, with Quarterly Updates Each registration is effective for 1 year. During this period, the administrator can require quarterly reports from the registrant on the progress of the offering. Note that if the offering takes longer than a year, the registration remains effective. Filing Fees, Filing of Advertising Filing a registration requires the payment of a fee to the State. If the fee is not paid in full, registration will be denied or stopped. In addition to the registration statement, the State can require filing of any advertising and sales literature, prospectuses, circulars or form letters used in connection with the offering. Persons Who May File Registration Application The registration application may be made by the issuer, any other person on whose behalf the offering is to be made (for example, an officer of a company selling shares in a registered secondary distribution); or a registered broker-dealer. Amended Registration If the registration statement is incomplete or inaccurate, an amendment must be filed prior to the registration becoming effective. Post Effective Amendment to Increase Offering Size - Pay Late Fee and Additional Filing Fee A registration statement for a securities offering may be amended after its effective date to increase the amount of securities to be sold (this would be done if there was greater demand than expected). The offering price and underwriter's compensation cannot be changed. To do this, it must be within 6 months of the original sale date (the effective date) and both a filing fee for the additional securities being offered and a late registration fee must be paid to the state.
Types of Securities Registration The Act provides for registration of securities by three methods: Registration by Filing; Registration by Coordination; and Registration by Qualification. Registration by Filing Used by "Seasoned" Companies Under this method, established "seasoned" companies for which there is already substantial trading activity and marketplace information are given a less rigorous registration procedure than the other two registration methods. Essentially, this method lets established companies use the prospectus filed with the SEC under the Securities Act of 1933, as the filing document with the State. Thus, no special State paperwork is required for filing in the State. Used by Officers in Non-issuer Transactions This is the easiest and least costly State registration method, for those companies that qualify. In addition, this is the method commonly used by "non-issuers" to offer shares in the State. As an example, an officer of a company holds unregistered shares of that company. If the company has registered shares outstanding, and is current in its SEC filings, the officer can sell the shares under SEC Rule 144, which registers the shares federally. To register the shares in the State, the officer would use this Registration by Filing procedure. To qualify for Registration by Filing, the issuer must: Required Conditions for Registration Have been in business continuously for the past 3 years. Have previously registered its equity securities with the Securities and Exchange Commission, which class of securities must be held by at least 500 shareholders. Have filed all required reports with the SEC during the past 36 months; and must have been "timely" in filing all reports during the preceding 12 months. Have either a Net Worth of $4,000,000 or; Net Worth of $2,000,000 and net pretax income from operations for at least 2 of the last 3 years. Have at least 400,000 shares outstanding, excluding shares held by officers, directors, underwriters, and "insiders" - defined as holders of 10% or more of the issuer's stock. Not have any warrants or options held by underwriters or officers and directors in excess of 10% of the outstanding shares. Have at least 4 registered market makers, making a market in the issuer's equity securities for 30 days out of the preceding 3 months. Have this offering performed by an underwriter who is a FINRA member; and the underwriter cannot take commissions in excess of 10% of the offering price for performing the underwriting; and the minimum offering price per share is $5. Have not defaulted in any payment of principal, interest, dividends or lease payments for the fiscal year preceding the registration filing. If the issuer is an open-end investment company (mutual fund) or unit trust, to Register by Filing, the applicant must: Have previously registered securities in the State for at least the preceding 24 months. Be in compliance with all material terms of such prior registrations. Have no material change in the terms of the issuer's securities; the method of selling the securities; the fund's investment objectives or practices; and the terms of sale of its securities. Consent to Service of Process Required, Required Information To Register by Filing, the registration statement must be filed with other papers and a consent to service of process. The information required includes: A statement demonstrating eligibility for registration by filing. Name, address, and form of organization of the issuer. A description of the security being registered. If part of the offering is a non-issuer distribution (e.g., an officer is including restricted shares that they own in the registration), then that person's name and address; amount of securities being offered; and reason for the offering; must be included. A copy of the latest prospectus filed with the registration statement under the Securities Act of 1933. Registration Is Effective on the 5th Business Day After Filing If no stop order is in effect (the SEC or Administrator can issue a "stop" order, halting sale of the issue), registration is effective on the 5th business day after filing and payment of required filing fees is made, or any shorter period so designated by the Administrator (many States have a 2 business day rule). When the registration with the SEC becomes effective, the State registration is effective as well. Any purchaser of the issue must get a copy of the prospectus, at or prior to, confirmation of sale. Registration by Coordination State Registration Is Coordinated with Federal Registration Under this method, the issuer can coordinate State registration with an SEC registration being performed under the Securities Act of 1933. Essentially, the filing of the SEC information with the State will satisfy the State registration requirement. This is a more rigorous method than Registration by Filing, and can be used by any company filing a registration statement with the SEC, whereas registration by filing is only available to "seasoned" companies. Required Information To Register by Coordination, the issuer must file, in addition to the consent to service of process, the following with the State: 3 copies of the proposed Prospectus filed with the SEC under the Securities Act of 1933. A copy of the issuer's Articles of Incorporation and By-Laws. A copy of any Agreement Among Underwriters. A copy of any Indenture governing the issuance of the security. A specimen of the security to be issued. If no stop order is in effect, when the Federal registration becomes effective, the State registration becomes effective. Any purchaser of the security in that State must get a prospectus copy, at or prior to confirmation of sale. Application Must Be on File for 10 Business Days However, the Administrator requires that the State registration be on file for at least 10 business days before State registration can be effective. Also, the amount of the securities to be offered in the State, with the maximum and minimum proposed offering prices, and maximum underwriting discounts, must be on file with the State for at least 2 business days prior to the effective date. If Administrator Issues Stop Order, Burden of Proof Is on Administrator As a final point, for the Administrator to issue a "stop" order against an issue that is being registered by coordination, the burden of proof is on the Administrator to show that the offering violates State law (the Federal law supremacy idea again). On the other hand, if the Administrator issues a stop order against an issue being registered by filing or qualification (covered immediately following), where there is no concurrent Federal registration, the burden of proof is on the applicant to show that the registrant is not violating State law. Registration by Qualification Most Difficult Registration Method, Required Information This is the most difficult method of registering and can be used for any security. This registration requires the most detailed disclosure. The information to be filed includes: Issuer's name, address, form of organization, character and location of business, description of physical property and equipment, and statement of competitive industry conditions. The name, address, and principal occupation for the past 5 years of each officer, director or 10% shareholder. In addition, the amount of the issuer's securities held by each such person; the amount of the issuer's securities in this offering to be purchased by each such person; and any material transactions between the officer and issuer in the past 3 years must be disclosed. Each director's earnings for last year and the coming year. Any amounts paid to promoters and non-issuers in the past 3 years and proposed future payments. (Note: The State Administrator can require that if the promoter is compensated with stock, that the stock be held in escrow for up to 3 years after the registration is effective. This stops the promoter from immediately "cashing out" at a profit.) Current balance sheet and income statement. Terms of the offering. How the sale proceeds will be used by the issuer. Description of stock options outstanding. All contracts made within the past 2 years; disclosure of all litigation. Copy of proposed prospectus, advertising and sales literature. Specimen copy of the security to be offered; copy of the issuer's articles of incorporation; and any trust indenture related to the securities offering. Legal opinion; Accountant's opinion. Any other information required by the Administrator. Registration Effective When Administrator Determines Registration is effective at a date set by the Administrator. Normally, this is 30 days after the date of filing, but if there are omissions or misstatements in the registration documents, the issue may never go "effective." Any purchasers must receive the prospectus at or before the time an offer is made in writing or a written confirmation of sale is sent
General Rules Regarding Securities Registrations The Administrator requires that a filing fee be paid to register an issue in the State. As a condition of registration by qualification or coordination, any "unusual" consideration paid to a promoter may be required to be deposited in escrow for up to 3 years. The Administrator can also impound the proceeds from a sale of securities until the issuer receives a specified amount. Each registration statement is effective for 1 year from its effective date. Note that if the offering takes longer than a year, the registration remains effective. A registration statement may not be withdrawn for 1 year from its effective date if any securities of the same class are outstanding. The Administrator may require the issuer to file quarterly reports to disclose the progress of the offering.
Federal Covered Securities Federal Covered Security The Administrator cannot require the registration of federal covered securities in the State. A federal covered security is defined as one that is: NYSE, AMEX (NYSE American) or Nasdaq listed on the New York Stock Exchange, American Stock Exchange (now renamed NYSE American) or Nasdaq, or is a senior security (preferred stock or bonds) of such an issuer; listed on a national securities exchange that has substantially similar listing standards to those exchanges listed above; Investment Company Issues issued by a registered investment company; Sold to Qualified (Wealthy) Purchasers sold to qualified purchasers (basically, a person who owns investments of at least $5,000,000 or investment managers with at least $25,000,000 of investment assets under management); or Sold in Transactions Exempt Under '33 Act sold in exempt transactions specified by the Securities Act of 1933, such as Regulation D private placements. Initial Public Offering - Notice Filing in State The Administrator cannot require registration of these issues in the State. However, the Administrator can require, for the initial offering of securities in a State by an issuer: a "notice filing" in the State; the filing with the State of the documents filed with the appropriate Federal agency (SEC) along with a consent to service of process; and the payment of a filing fee in the State. If an issuer refuses to pay required "notice" fees, then the State is authorized to require registration of the securities. Concurrent Filing of Amendments, Fees Based On Sales in State After the initial offering of securities in a State, any amendments that are filed with the SEC must be filed concurrently in the State. The State can require the filing of sales reports, and fees payable based on sales of the security in that State. The Administrator may issue a stop order suspending the offer of a covered security (with the exception of exchange-listed securities) if it finds that the order is in the public interest; and the issuer has failed to comply with any of the conditions outlined above (such as not paying that all-important fee!)
Securities Exempt from Registration Exempt Securities Each of the following securities is EXEMPT from registration requirements in the State, as well as from advertising filing requirements. Generally, the exemptions cover the following broad categories of issuers: Government and Municipal Issuers, since their securities are "safe." Issuers Already Regulated Under Other Laws (e.g., banks, savings and loans, insurance companies). Large Established Companies (since they will be complying with Federal laws already). Non-Profit Institutions. The basic "idea" is that the State Administrator is worried about offers of "unseasoned" new issue securities (such as "penny stocks" and other types of speculative issues) from unscrupulous promoters. These are the issues that are subject to State registration requirements, since the State wants to make sure that its citizens are not being defrauded. Exempt Securities for State Law Differ from Federal Law, Anti-fraud Rules Apply Please note that this listing is somewhat different than the securities that are exempt under the Securities Act of 1933. Also note that if an individual commits fraud when offering an exempt security, the Act’s anti-fraud provisions still apply. The specific exempt securities under State law are listed following. Government and Municipal Issues US Government and Agency Securities. Municipal Securities. Canadian Government Securities. Other Foreign Government Securities. Issues of Companies Already Regulated Under Other Federal or State Laws Depository Institution Issues (Bank and Savings and Loan Issues; but not Bank Holding Companies). Federal Credit Union Issues. Industrial Loan Association Issues. Insurance Company Issues (except for variable annuity contracts). Securities Issued By Railroads and Common Carrier regulated by the Interstate Commerce Commission. Securities Issued By Public Utilities regulated by the Public Utility Holding Act of 1935. Issues of "Established Companies" Securities of companies listed, or approved for listing on the New York Stock Exchange, American Stock Exchange (now renamed NYSE American), Midwest Stock Exchange or appropriate Regional Stock Exchanges (and Nasdaq for most States). These are known as "blue chip" securities, so this is termed a blue-chip exemption. An exemption is given because these companies must comply with stringent Exchange financial standards and disclosure rules. If the common stock of a company is listed, ALL of the company's securities fall under the exemption, including senior securities such as preferred stocks and bonds, as well as rights and warrants. However, please note that any joint ventures of this issuer or partnerships formed with this issuer as the general partner do not fall under the exemption, since, technically, the joint venture or partnership is the issuer - not the corporation. Promissory Notes that will mature in 9 months or less, that are rated in one of the 3 highest rating categories, issued in amounts of at least $50,000. Essentially, this provision exempts corporate Commercial Paper. Non-profit Issues Securities of non-profit persons such as educational or charitable organizations. For example, so-called "church" bonds, used to pay for the construction of new churches or church additions, are an exempt security. Please note, however, that there have been many frauds associated with these offerings, where "good people of faith" have been fleeced. Because of this, the Uniform Securities Act provides that, in order to offer a note, bond, or debt, of a religious, benevolent, fraternal or social organization, the Administrator: Can require the issuer to file a Notice specifying the material terms of the offer in the State and file copies of proposed advertising and sales literature used in connection with the offering; Can provide that the exemption becomes effective only if the Administrator does not disallow it within a stated time period; Can disallow the exemption, providing the grounds for denial or suspension; Can require the issuer to register in the State (used if the Administrator believes that the bond issue is really a "commercial offering" and not a true "charitable" offering). Securities of Cooperatives (e.g., Farmer's Cooperatives). Investment Contracts issued in connection with employee stock purchase, savings, pension, or benefit plans Exempt Transactions If Transaction Is Exempt - No Registration of the Issue in The State Generally, exempt transactions are trades that do not involve the public. If a person offers a security in an "exempt transaction," then the issue does not have to be registered in the State. Individuals Who Represent Issuers in Exempt Transactions Are Excluded The Uniform Securities Act also EXCLUDES from the definition of an "agent," those individuals who represent ISSUERS in "exempt transactions." These individuals do not have to be registered in the State. Individuals Who Sell Securities in Exempt Transactions Still Must Register in the State Please note that the Act does not exclude individuals who represent broker-dealers in "exempt transactions" from being registered under the Act, unless the broker-dealer itself is exempt. Also note that the "anti-fraud" provisions of the Act apply to these transactions. The exempt transactions under State law are: Isolated Non-issuer Transactions - These are trades for the benefit of someone other than the issuer, that is, normal trading in the secondary market. This exemption is narrowly defined in most States as being 1 or 2 transactions in a year. Furthermore, the broker-dealer cannot be a resident of that State to take advantage of this exemption. Non-issuer Transactions in Outstanding Securities of Companies Registered Under the 1934 Act - This is normal secondary market trading of securities that have already been registered with the SEC. To qualify for the exemption, the company must have been reporting to the SEC for at least 180 days. Thus, this exemption is not available for initial public offerings that have been outstanding for less than 180 days; it is only available for "seasoned" companies. Non-issuer Transactions in Outstanding Securities of Companies Registered Under the Investment Company Act of 1940 - This is normal secondary market trading of investment company securities that have already been registered with the SEC. Non-issuer Transactions in Securities Traded on Designated Stock Exchanges - This exemption is specifically earmarked to exempt secondary market trades of securities listed on the Toronto Stock Exchange. The idea is similar to the exemption given exchange listed issues traded in the US that are subject to the Act of 1934. To meet the exemption, these issuers must be in compliance with Canadian securities law and meet the 180-day continuous reporting requirement. Under the provisions of NAFTA (North American Free Trade Agreement between the US, Canada and Mexico) and GATS (General Agreement on Trade in Services), the Administrator has the power to exempt these
transactions by rule or order for trades occurring on either Canadian or Mexican stock exchanges. Currently, only trades on the Toronto exchange are exempted. Fiduciary Transactions - Transactions made by an Executor, Administrator, Sheriff, Marshall, Receiver, Trustee in Bankruptcy, Guardian or Conservator. Unsolicited Transactions - These are trades which are effected through a broker-dealer pursuant to an unsolicited order or offer to buy or sell. Any such trades must be documented by a "non-solicitation" statement signed by the customer. The Administrator may require that this form be maintained on file for a specified time period. Real Estate Transactions Secured by a Mortgage - As long as the mortgage is sold as a whole unit. If the mortgage is "securitized" and sold as individual pieces (for example, the creation and sale of a collateralized mortgage obligation), this would be a non-exempt transaction. Transactions Between Issuers and Underwriters - These are exempt since the public is not involved. Transactions with Financial or Institutional Investors - These include trades with banks, insurance companies, trusts, investment companies, pension or profit sharing trusts, broker-dealers, and other institutional buyers and are exempt because the public is not involved. For such a transaction to be exempt, the Administrator must designate such institutions by rule or order. Private Placements - These have a different definition than under Federal law. The Uniform Securities Act defines a private placement as an offer to no more than 10 persons during any 12-month period. To qualify for this exemption: The seller must believe that all of the purchasers are buying for investment; and No commissions may be paid for soliciting prospective buyers, other than financial or institutional investors. Thus, this exemption discourages the offer of private placements to individuals since no commissions can be paid for soliciting them. However, commissions may be paid when financial and institutional investors are solicited. In any event, the maximum number of offers is limited to 10 persons in a 12 month period. Please note, however, the Administrator in each State can alter the numerical requirements of this exemption. Note: Remember not to confuse this State private placement exemption with the Federal law "Regulation D" private placement exemption that allows a sale to a maximum of 35 "non-accredited investors" and to an unlimited number of "accredited" (wealthy or institutional) investors. There is no similar wording in State law. Offers of Sales of Pre-organization Subscriptions - These are exempt if no commissions are paid for soliciting potential subscribers; the number of subscribers is limited to 10 persons; and no payment is made by any subscriber. (This parallels the private placement exemption). Sales where no commissions or other remuneration is received also are exempt. This exemption applies mainly to "rights offerings," where an existing shareholder subscribes to a new issue of stock by exercising his subscription rights. No commissions are paid, and the transaction is exempt. It also applies to mergers, exchange offers, and other corporate reorganizations.
Denial, Revocation, or Suspension of Registration The Administrator is empowered to issue a stop order denying effectiveness to registration; suspending registration or revoking registration of an issue if it is in the public interest; and The registration statement is incomplete in a material respect or is misleading or false with respect to a material fact. The Act has been willfully violated by any person involved in the offering. The security to be registered is subject to a temporary or permanent injunction from another State or Federal court. The issuer's enterprise is illegal. The offering tends to work a fraud on purchasers. The offering is being made on terms that are unfair, unjust or inequitable. The underwriter's compensation in the offering is unreasonable. The security is sought to be registered by a method for which it is ineligible (for example, an initial public offering that the issuer is attempting to register in the State by Filing - this is not allowed since this method is only available to "seasoned" companies). The applicant has failed to pay the filing fees. The Administrator is prohibited from issuing a stop order based upon a fact known to the Administrator when the registration became effective, unless the Administrator takes action within 30 days of the effective date. If Stop Order Entered Opportunity for Hearing Is Given If the Administrator issues a stop order, the issuer must be given an opportunity for a hearing to determine if it should be lifted. If a stop order is entered, the Administrator must: Promptly notify all interested parties that the order has been entered, with the reasons for entering the order; and That within 15 days of written request, the matter will be set down for a hearing. If no hearing is requested, or no hearing is ordered by the Administrator, then the order remains in effect, unless so changed by the Administrator.
Revocation of an Exemption The Administrator is allowed to deny or revoke any specific exemption for a security or transaction by order. The order cannot be entered unless: Appropriate prior notice is given to all interested parties; An opportunity for a hearing is provided; and Written findings of fact and conclusions of law are provided. However, the Administrator may summarily deny or revoke any exemption pending final determination of any proceeding. If a summary order is entered, the Administrator must: Promptly notify all interested parties that the order has been entered, with the reasons for entering the order; and Within 15 days of receipt of a written request, set down the matter for a hearing. If no hearing is requested, or no hearing is ordered by the Administrator, then the order remains in effect, unless so changed by the Administrator. Administrative orders cannot be applied retroactively. A person cannot be found in violation of such an order if he sustains the burden of proof
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