Series 66: Uniform Securities Act (Securities Registration)

The person who is designated to enforce the provisions of the Uniform Securities Act is known as the:

Administrator The Uniform Securities Act is enforced by the "Administrator" in each state.

Which transaction is included in the definition of an "offer to sell"?

An unexecuted contract to sell a security (an open order) The definition of an offer to sell is an attempt or offer to dispose of a security, or an interest in a security, for value. Choice D is an offer to sell (the unexecuted contract to sell). In contrast a "sale" is the completed contact of sale - Choice A. A gift of a non-assessable security (choice B) is a "gift" - not a sale. A gift of an assessable security is a "sale," since the giver is relieved of a potential future liability. Choice C is considered to be a sale since the security was "given" with the sale of another security. Therefore, the value of that gift was included as part of the sale price, so the "gift" was actually sold for value.

Under the Uniform Securities Act, an offering of a limited partnership made to a bank trust department is: I a transaction that is exempt from registration II exempt from the advertising filing rules III exempt from the anti-fraud rules

I and II An offering of a limited partnership interest to a bank trust department is an exempt transaction. If the security or transaction is exempt, the State Administrator cannot require filing of advertising related to that offer or sale. However, all transactions are subject to the anti-fraud rules.

The term "sale" includes each: I contract of sale II disposition of an interest for value III gift of assessable securities

I, II, III The term "sale" includes every contract of sale; disposition of an interest for value: and gifts of assessable securities since the recipient of the gift is responsible for any future assessments.

An issuer that is listed on the NYSE is making an offering of convertible debentures. Under Uniform State Law, which statement is FALSE?

The Administrator can subject the offering to State review and approval This is a federal covered security (all exchange listed issuers are "federal covered") that can only be required to be registered with the SEC. The State cannot require registration. The State can require that a notice filing be made and that a filing fee be paid. However, it has no right to approve or disapprove of the issue. The Administrator has jurisdiction over any offering that is fraudulent in the State.

The Administrator may issue a stop order, denying effectiveness to registration of a new issue, for all of the following reasons EXCEPT:

a fact known to the Administrator when the registration became effective causes the Administrator to issue a stop order 60 days later The Administrator may not deny, revoke or suspend registration of an issue based upon a fact known at that time that the registration statement became effective, unless such action is taken within 30 days of the effective date. The Administrator can deny effectiveness to a registration of securities because the offering is being made on terms that are inequitable to investors (which can be considered fraudulent); of the offering is subject to a stop order in another State or from the SEC.

A customer of a broker-dealer is a sophisticated investor and is interested in purchasing the shares of XYZZ Corporation, a company that has recently gone public and is thinly traded in the Pink OTC Market. The customer contacts his agent to buy the shares, but the agent does not see any shares offered in the market so he contacts one of the officers of the company to see if that officer has shares that she wishes to sell. The officer agrees to sell some of her shares under Rule 144, so the broker recontacts the customer to tell him that he has found the shares that the customer wishes to buy. In this scenario, the agent has:

made an offer to sell to the customer An "offer" or "offer to sell" is defined as any attempt to offer to dispose of a security, or a solicitation of an offer to buy a security or an interest in a security, for value. The agent has contacted the officer of the company, to see if she is interested in selling the shares that this customer wishes to buy. When the agent contacts the customer with the news that he has found an officer willing to sell the shares, the agent is making an offer to sell the securities to the client.

All of the following statements are true about unsolicited customer transactions effected through a broker-dealer EXCEPT:

no commissions may be paid to the broker effecting the transaction Unsolicited customer transactions effected through at broker-dealer are exempt under State law. Note that this only means that there is no requirement that the security involved be registered; the broker-dealer effecting the trade must still be registered in the State or must be eligible for an exemption/exclusion if it is not registered in the State. This is a "non-issuer" transaction, since the issuer does not receive the proceeds of the sale. The State may require that the broker-dealer have the customer sign a "non-solicitation" letter proving that the trade was, indeed, unsolicited. There is no restriction on the paying of commissions in unsolicited trades. This restriction only applies to the private placement exemption; and the exemption that is given to sales where no commissions are paid.

An agent tells a customer "I cannot sell you that stock, but if you want to buy it, let me know and I can sell it to you." The agent has attempted to induce a(n):

offer to purchase from the customer This one is interesting. If an agent is not registered in a given State, then that agent cannot solicit orders to buy or sell securities in that State. The agent appears to believe that if the transaction is unsolicited, then it is OK to take an order from that customer. However, this exemption only applies to the registration of securities and not to the registration of agents. The agent has attempted to induce an offer to buy (purchase) from the customer. This would be unethical if the agent were not registered in the customer's State.

Registration by qualification becomes effective:

on a date set by the Administrator Registration by qualification is used by issuers for their first time registration in that State when no SEC registration is required (that is, they must "qualify" their issue for registration in the State). Registration becomes effective when the Administrator so determines (which is normally 30 days after filing, if there are no "problems" with the filing).

The Administrator may deny or revoke a securities registration by:

order Administrators are permitted to enter orders denying or revoking registration.

For offers of pre-organization certificates to be exempt under the Uniform Securities Act, the number of subscribers is limited to how many people?

10 people Offers of pre-organization certificates are exempt under the Uniform Securities Act 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 generally parallels the private placement exemption under State law, except that advertising is allowed for pre-organization certificates -but not for private placements.) Note that advertisements for such offerings are permitted because the intent of this law is to enable a new enterprise to obtain the minimum number of subscribers required to form the business under corporate law.

Under the Uniform Securities Act, a private placement is an offer where no commissions are paid, made to no more than:

10 persons in a 12 month period Under the Uniform Securities Act, a private placement is an offer to no more than 10 investors in a 12 month period, where no commissions are paid. Do not confuse this with private placement exemption available under Federal law (Regulation D) which defines a private placement as a sale to no more than 35 "non-accredited" investors and an unlimited number of "accredited" investors. There is no similar wording in State law for private placements.

A private placement under the Uniform Securities Act is defined as an offer to:

10 persons or less in 12 months A private placement is defined under the Uniform Securities Act as an offer to no more than 10 persons in a year. Private placements are exempt transactions as long as the general public is not solicited and no commissions are paid. Also note that this is a very different from the Federal private placement rule.

Registration of securities in a State by Filing becomes effective:

5 business days after the filing with the State is completed Registration of securities in a State by filing becomes effective on the 5th business day after filing (unless the Administrator allows a shorter period).

If a registration is found to be incomplete, effectiveness will be denied until which of the following is filed?

Amendment to the registration application If a registration statement is found to be incomplete, there is no requirement for a complete new filing. The additional information is provided by filing an amendment with the Administrator.

When a security is being registered in a State by coordination alongside a federal registration for that security being performed under the Securities Act of 1933, what information must be filed in the State?

A consent to service of process, copies of the prospectus, and a copy of the articles of incorporation and bylaws Under Registration by Coordination, 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. 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; and 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. Note that a "notice filing" could only be used in the State if the security being registered with the SEC were "federal covered" - meaning it is exchange or NASDAQ listed. If the security was not "federal covered," for example, a smaller company that will be listed in the Pink Sheets, then State registration is still required.

Registration by Coordination can be stopped by the Administrator if it is in the public interest and the:

Administrator can show that the registration is incomplete in any material respect Registration by Coordination in a State permits the applicant to coordinate an SEC registration with the registration requirement in each State. Essentially, the State accepts the SEC registration statement as the State filing document. Registration becomes effective in the State when the SEC registration is effective. In such a registration, the State Administrator can only issue a stop order if "it is in the public interest" and the Administrator can prove that the offering would be illegal in the State, is not complete, or required filing fees have not been paid (thus, the burden of proof is on the Administrator). On the other hand, in a Registration by Qualification or Filing, there is no concurrent SEC registration. The security is only being registered in the State. In such a case, the Administrator can issue a stop order "if it is in the public interest" and the applicant cannot prove that the offering would not be illegal in the State (the burden of proof is on the applicant).

Which of the following information would NOT be found in a registration statement for a security that is going to be registered by qualification in a State?

Analysis of company profitability as compared to industry norms Consider this to be a learning question: Any registration statement for a securities offering includes: Current balance sheet and income statement; Business description; Use of proceeds of offering; Offering Terms; Legal Opinion; Accountant's Opinion. There is no analysis of company profitability in the registration statement as compared to other companies in the industry.

Under the Uniform Securities Act, which transaction is allowed for exempt unregistered securities?

Both primary and secondary offerings In a nutshell, since it is an EXEMPT unregistered security, both primary and secondary offerings are allowed without filing a registration statement in the state. If the security were non-exempt, then to offer that security in the state, registration would be required.

All of the following are defined as a "State" under the Uniform Securities Act EXCEPT:

British Columbia "State" is defined under the Act to be any state, territory, possession of the United States, the District of Columbia, and Puerto Rico. British Columbia is part of Canada; not part of the United States.

All of the following are exempt securities under the Uniform Securities Act EXCEPT:

Corporate bonds Corporate bonds are not exempt under the Uniform Securities Act and thus must be registered in the State. U.S. Government bonds; U.S. Government agency bonds; and municipal bonds; are exempt securities.

Which of the following is a non-exempt security under Uniform State Law?

Corporate bonds offered to fewer than 5 investors Under Uniform State Law, exchange and NASDAQ listed issues are exempt securities in that State; as are not-for-profit issues and equipment trust certificates (which are issued by common carriers subject to I.C.C. regulation). Corporate bonds of issuers that are exchange listed are exempt securities as well - but there is no mention of this in Choice D. Corporate bonds offered to 5 or fewer investors would qualify as an exempt transaction; not as an exempt security.

Which of the following is NOT defined as a security under the Uniform Securities Act?

Endowment policy Endowment policies are not securities. Bank notes (as opposed to a bank deposit), variable annuities and warrants are all defined as securities. endowment policy = an insurance product that promises to pay a fixed amount at a specified date, if the policyholder has not died prior to that date.

All of the following are defined as securities under the Uniform Securities Act EXCEPT:

Fixed Annuity Contracts Fixed annuities are not defined as securities because there is no investment risk - the insurance company guarantees a fixed rate of return. This is considered to be an insurance product. Interests in oils and gas programs; multilevel distributorship arrangements; and variable annuity contracts are all defined as securities under the Act.

Under the Uniform Securities Act, registration of a security in a State means that: I disclosure documents have been filed with the Administrator II the Administrator has reviewed the content and accuracy of the filing III the Administrator has approved of the securities being offered

I and II Registration of a security does not mean that the Administrator approves of the issue. Registration means that required papers have been filed and reviewed by the Administrator.

To register an issue by filing, the issuer must be: I in business for the past 3 years II profitable for 2 of the past 3 years III in business for the past 5 years IV profitable for 2 of the past 5 years

I and II To qualify for registration by filing, an issuer must have been in business continuously for the past 3 years, and must have net earnings for 2 of the past 3 years.

Exempt securities are NOT subject to which provisions of the Uniform Securities Act? I Advertising filing requirements II Registration requirements III Anti-Fraud requirements

I and II only Both exempt and non-exempt securities; and exempt and non-exempt transactions are subject to the anti-fraud provisions of the Uniform Securities Act. Exempt securities are not subject to the Act's securities registration and filing of advertising requirements.

An application to register securities may be filed by the: I Broker-Dealer II Agent III Issuer IV Investment Adviser

I and III Applications to register a security in a State cannot be filed by agents; nor can they be filed by investment advisers. They may only be filed by the issuer; or a broker-dealer acting for an issuer; or the person on whose behalf the offering is being made (for example, an officer of a company effecting a secondary distribution of a large block of shares that he or she holds can file a registration application).

Under the Uniform Securities Act, if an offer of not-for-profit "church" bonds is to be made in a State: I the Administrator can require that a Notice Filing be made in the State II the Administrator can require that the issue be Registered by Coordination in the State III the Administrator can require the filing of any promotional materials used in connection with the offer and sale of the issue IV the Administrator can disallow the exemption without providing any reason for such a denial

I and III Bonds issued by not for profit organizations are an exempt security under Uniform State Law. 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 (typically 10 business days) 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) Note that because not for profit issues are exempt securities under Federal law, there would be no Federal registration filing that could be "coordinated" with a State registration.

An investment adviser headquartered in State A with $150 million of assets under management recommends the purchase of a NASDAQ-listed issue to her customers. Which statements are TRUE? I The adviser is a federal covered adviser and is not required to be registered in the State A II The adviser is not a federal covered adviser and must be registered in State A III The security being recommended is an exempt security and is not required to be registered in State A IV The security being recommended is a non-exempt security and must be registered in State A

I and III Federal covered advisers cannot be required to register in the State (however, the State can require a "notice" filing and payment of a filing fee); they must register with the SEC. Advisers to investment companies and advisers with $100 million or more of assets under management are federal covered. This adviser has $150 million of assets under management, so it is federal covered. Federal covered securities are major exchange listed companies, including NASDAQ listed issues, and investment company securities that are registered federally with the SEC. These are no longer required to be separately registered in each State; however the State can still require a notice filing for these offerings.

To use Registration by Coordination, an issuer must file a registration statement with the: I Securities and Exchange Commission II Administrator of another State III Administrator of that State

I and III Registration by Coordination of a securities issue in a State allows the Federal registration document required under the Securities Act of 1933 (the Prospectus filed with the Securities and Exchange Commission) to be the basis for registering the issue in that State. There is no provision in Uniform State Law that allows a registration statement filed in one State to be the basis for filing a registration in another State.

A broker-dealer has a place of business in State A does business exclusively in State A and is registered in the State. The broker-dealer has no office in State B and is contacted by a client in State B who wants to sell some securities that he inherited. State B does not have a de minimis rule for broker-dealers. The client is not interested in opening an account and only wants the broker-dealer to do this transaction and remit the proceeds to the customer. Which statements are TRUE? I In order to effect this transaction, the broker-dealer must be registered in State B II In order to effect this transaction, the broker-dealer is not required to be registered in State B III In order to effect this transaction, the securities involved must be registered in State B IV In order to effect this transaction, the securities involved are not required be registered in State B

I and IV If a broker-dealer with no office in that State, effects an isolated non-recurring trade in that State in a 12 month period, the transaction is exempt, and the security is not required to be registered in that State. This is an "isolated non-issuer transaction."Note that the broker-dealer still must be registered in the State unless the broker-dealer has no office in the State and the broker-dealer qualifies for a "de minimis" exemption in the State. This State does not have a "de minimis" rule for out-of State broker-dealers, therefore the broker-dealer must be registered in State B to do the trade.

Which of the following are defined as securities under the Uniform Securities Act? I Certificates of participation in an investment plan II Fixed annuity III Cash value life insurance policy

I only A certificate of participation in an investment plan is a security. A fixed annuity is an insurance product - it is not a security since the holder has no investment risk. Similarly, a life insurance policy is not a security.

The provision(s) of the Uniform Securities Act that apply(ies) to persons who effect isolated non-issuer transactions on their own behalf, is (are): I Anti-Fraud provisions II Securities registration provisions III Broker-dealer registration provisions

I only Fraudulent actions are a violation for anyone under Uniform State Law. If an unregistered person commits a fraud, the Administrator can pursue him or her, and his or her broker-dealer or investment adviser. The Act exempts any person who effects an isolated non-issuer securities transaction from the securities registration requirements; not from the anti-fraud provisions. The security involved does not have to be registered in the State, but the broker-dealer and agent effecting the transaction must be registered unless they qualify for an exemption or exclusion.

Which of the following transactions are EXEMPT under the Uniform Securities Act? I The sale of common stock to a savings and loan II The sale of common stock to an investment company III The sale of common stock to a customer in a solicited trade IV The sale of common stock to a customer in an unsolicited trade

I, II and IV Exempt transactions under the Uniform Securities Act include trades of non-exempt securities (common stock is non-exempt) with financial or institutional investors (such as Savings and Loans and Investment Companies). Unsolicited transactions are also exempt under the Act. Solicited trades, however, are non-exempt. Also remember that this exemption only applies to the registration of the securities involved. The agent must be registered (unless that agent qualifies for an exemption or exclusion), regardless of whether the securities involved are exempt or the transaction is exempt.

Misstatements of material fact in a securities registration are violations of the Act for which of the following persons? I Issuer II Directors of the issuer III Underwriter IV Agents of the underwriter

I, II, III Agents are not involved in the filing of registration statements for securities; therefore, they are not responsible for the contents of the registration statement. However, issuers, directors of issuers, and underwriters are all involved in preparing a securities registration statement and have liability for material omissions under the Act.

Which of the following statements are TRUE regarding private placements under the Uniform Securities Act? I No commissions can be paid for sales to individual investors II No more than 10 prospective investors may be contacted III General advertising is prohibited

I, II, III Private placements under State law differ from the Federal law private placement exemption. Under State law, a private placement is an offer of securities to no more than 10 persons, where no commissions can be paid for sales to individual investors (they can be paid on sales to institutional investors). Advertising is prohibited, since advertising would make this an offer to the general public - not a "private placement." In contrast, under Federal law, a private placement is a sale of securities to no more than 35 "non-accredited" investors. No advertising is permitted; and Federal law is silent about commissions (thus, they can be paid).

ABC Corporation has its common stock listed on the New York Stock Exchange. Which of the following ABC issues is (are) EXEMPT from State registration? I ABC preferred stock II ABC Convertible debentures III Warrants to buy ABC common stock IV Limited partnership units where ABC is the general partner in the venture

I, II, III Under the "blue chip" exemption, if a corporation has its stock listed on a national securities exchange, then any securities offerings of that issuer are exempt from registration under State law. Thus, if ABC Corporation has its common stock listed on the New York Stock Exchange, then ABC preferred stock, ABC bonds, and ABC rights and warrants would all be exempt as well. Thus, Choices I, II, and III are true. Also note that under the National Securities Markets Improvement Act of 1996, these are now defined as federal covered securities, which are only registered with the SEC; the States cannot require registration for these issues. Choice IV is a very different animal. A partnership where ABC Corporation is a general partner is a different legal entity than ABC Corporation itself; and the securities sold by the partnership are not an issue of ABC Corp. - rather, they are an issue of that partnership. Thus, these limited partnership units are a non-exempt offering under this interpretation and must be registered (unless another exemption is available).

Under the Uniform Securities Act, it is unlawful for any person to offer or sell any security in a State unless the: I security is registered in the State II security is exempt from registration in the State III transaction is exempt in the State IV transaction is non-exempt in the State

I, II, III Uniform State law requires that for a security to be sold or offered in a State, it must be registered in that State; or it must be a federal covered security; or it must be exempt from registration; or it must be sold in an exempt transaction. If a security is sold in a non-exempt transaction, then that security must be registered in the State. Also, please note that if an agent of a broker-dealer offers a security in a transaction that is either exempt or non-exempt - that agent must still be registered in the State!

Which of the following are defined as "federal covered securities"? I Common stock of a company listed on the NYSE II Bonds of a company listed on the NASDAQ III Common stock issued by an investment company IV Bonds of a company listed on the NYSE

I, II, III, IV A "federal covered security" is one of a "substantial company" or an investment company that must be registered with the SEC. In this case, it is considered "overkill" to require registration of the security at the State level as well. Exchange and NASDAQ listed issues, as well as any senior securities of those issuers, are federal covered securities.

Registration by Filing would NOT be permitted for which of the following reasons? I An Administrator in another State has issued a stop order relating to this issue II The issue is only going to be offered in one State III The Securities and Exchange Commission denies effectiveness to the Federal registration statement IV The Administrator has not received a copy of the latest prospectus

I, II, III, IV Registration by Filing is used for "seasoned" companies to register securities in a State, when these companies have previously registered securities with the Securities and Exchange Commission. It is not available if another Administrator has issued a stop order against selling the issue (this would be the case with any securities registration); It is not permitted if the issue is only going to be sold in one State, since there is no Federal registration for intrastate issues; it is not available if the SEC does not allow the Federal registration to become effective; and it is not available unless the issuer files a copy of the latest prospectus used in the Federal registration with the State Administrator.

Which of the following securities can be registered by qualification in a State? I Direct Participation Program II Fractional Interest in an Oil and Gas Program III Voting Trust Certificates IV Pre-organization Certificates

I, II, III, IV Registration by Qualification in a State is the most difficult method and can be used for ANY security - and all of the choices listed are defined as securities. It is typically used for a company's initial public offering where there is no Federal SEC registration, so the State has no other information about the issuer and the issuer must "qualify" to have its securities registered in the State. In contrast, if an issuer is registering with the SEC, it can use the Federal SEC registration as its State registration document under "Registration by Coordination." If an issuer has previously registered securities with the SEC and State, it is a "seasoned issuer" and the State knows who the issuer is. Then the issuer can use the simpler method of Registration by Filing (Notification) in the State.

A security cannot be offered in a state unless it: I has been registered in the state II is a federal covered security, in which case no registration is required III is an exempt security, in which case no registration is required IV is offered in an exempt transaction, in which case no registration is required

I, II, III, IV To offer a security in a State, if it is non-exempt, it must either be registered or must be offered in an exempt transaction. If the security is exempt, or if it is a federal covered security, there is no requirement for registration and it can be freely offered. Please note that the broker-dealer and agent offering the securities must still be registered unless these persons are excluded from the definitions of "agent" and "broker-dealer."

A company that has never previously issued securities registered with the Securities and Exchange Commission, can register in a State by: I Filing II Coordination III Qualification

II and III Registration by Filing is only available to "seasoned" companies that have previously registered securities with the SEC. If a company has never issued securities before, this method cannot be used. Registration by Coordination coordinates State registration with a current Federal registration. This method is available to a company that has never registered securities in the State, as long as a current SEC filing is being made. Registration by Qualification is a detailed filing in that State for any issuer and is also available for first time registrants.

Registration by Filing would be used by which of the following? I A new company that is registering securities for the first time in the State II An established company that has previously registered securities with the Securities and Exchange Commission III An officer of a publicly held company selling unregistered shares of that company under SEC Rule 144

II and III Registration by Filing is used by established "seasoned" companies for which there is already substantial trading activity and marketplace information. 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. This is the easiest and least costly State registration method. In addition, this is a 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.

Under the Uniform Securities Act, a registration statement which has been filed for a security: I is effective for 90 days II is effective for 1 year III remains in effect for as long as the security is actively offered IV remains in effect if a "stop" order is issued by the Administrator

II and III Registration statements for securities are effective for 1 year. However, they remain in effect for as long as the security is actively offered - so if the offering takes longer, the registration is still good. If a stop order is entered, the registration ceases to be effective and sale of the issue must stop.

Under the Uniform Securities Act, a "sale" of a security has occurred if a: I stock dividend is paid II listed option is exercised III gift of assessable stock is made IV loan of stock is made to a short seller

II and III The distribution of a stock dividend is not a "sale" - there is no ownership change. If a listed option is exercised, then a "sale" of stock is occurring at the strike price. A gift of an assessable security is not a gift - it is a "sale" because the seller is relieved of future obligations to pay into the venture. A loan of stock is not a sale; it is a loan that must be repaid by replacing the securities at a future date

Which of the following securities issues MUST be registered in a State? I Common shares of a public utility II Subordinated debentures of a bank holding company listed in the Pink Sheets III Common shares of an industrial company listed in the OTCBB IV Investment company securities

II and III only Under Uniform State Law, securities issued by public utilities regulated under the Public Utility Holding Act of 1935 are exempt securities. While bank, and savings and loan issues, are exempt, securities issued by bank holding companies are not. So if a bank offers its own common stock, it must be registered in the state unless the security is "federal covered" - meaning that it is listed on a major exchange (NYSE, AMEX (NYSE American) or NASDAQ). The Pink OTC Market has no listing standards and is not an exchange. Common shares of industrial companies are non-exempt unless they are listed on a major stock exchange (blue chip exemption). The OTCBB (Over-The-Counter-Bulletin-Board) has no listing standards and is not an exchange. Investment company securities are federal covered securities, and cannot be required to be registered in the State - only registration with the SEC is required.

A NASDAQ listed issuer plans on offering 5,000,000 new shares in an "add on" offering that will be sold by its underwriters in all 50 States. Which statements are TRUE? I The security must be registered in each State II A notice filing and filing fee are required in each State III A prospectus must be filed in each State IV A consent to service of process must be filed in each State

II and IV Because this is an offering of a "federal covered" security (exchange listed or NASDAQ listed), the States cannot require a registration filing. The only registration filing is with the SEC. However, each State will still require a "notice" filing and payment of a filing fee; along with the filing of a consent to service of process.

Under the Uniform Securities Act, an investment adviser with no place of business in a State only does 1 trade in a non-exempt security in the State within a 12 month period. Which statements are TRUE? I The security must be registered in the State II No registration of the security is required because the transaction is exempt III The investment adviser must be registered in the State IV The investment adviser is not required to register in the State because it qualifies for a "de minimis" exemption

II and IV If an investment adviser with no office in that State, effects an isolated non-recurring trade in that State in a 12 month period, the transaction is exempt under the "isolated non-issuer transaction" exemption. This means that the security involved is not required to be registered in the State.Furthermore, because the investment adviser has no office in the State and is only doing 1 transaction in the State in a year, it qualifies for a "de minimis" exemption from State registration (available to investment advisers with 5 or fewer clients in a State in a 12 month period in most States)

Which statements regarding registration of a security in a State are FALSE? I Registration is effective for a time period of 1 year II Once registration is declared effective in a State, it is effective in any other State in which a registration statement is filed III A registration statement can be filed in a State by a person other than an issuer IV To maintain registration in a State quarterly and annual financial statements must be filed with the Administrator

II and IV Registration statements filed in a State are good for 1 year, so Choice I is true. Once registration is declared effective in one State, it is not automatically effective in any other State in which a registration statement is filed. Each State acts independently, making Choice II false. A registration statement can be filed by an underwriter or attorney acting for an issuer; or it can be filed by anyone who has securities that need to be State registered in order for them to be sold; making Choice III true. There is no State filing of an issuer's quarterly and annual financial statements - these are required to be filed by SEC-registered issuers under the Act of 1934 and are public documents, so Choice IV is false.

An issuer has filed a registration statement in a State for a new issue of securities that is effective and sale of the issue has started. The issuer finds that there is great demand for the offering and wishes to increase the number of shares being issued. In order to do this: I a new registration statement must be filed with the State, if it is within 6 months of the date of sale II an amendment must be filed, as long as it is within 6 months of the date of sale III an additional filing fee must be paid, but no late registration fee is required IV both an additional filing fee and a late registration fee must be paid

II and IV Under USA, 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. (Of course, you might wonder why this bit of trivia must be known for the exam, but it must!) The amendment becomes effective when the Administrator so orders.

Limited partnership shares are sold to a bank. Under the provisions of the Uniform Securities Act of 1956, as amended, this transaction is subject to: I advertising filing requirements with the Administrator II anti-fraud provisions as promulgated in the Act III payment of filing fees with the State

II only The sale of securities to a financial institution is an "exempt transaction" under the Uniform Securities Act - because the general public is not involved. As an exempt transaction, the securities involved are not required to be registered in the State (however the person selling them must still be registered in the State). Both exempt securities and exempt transactions are specifically excluded from the Act's advertising filing requirements. Finally, filing fees are only required for securities registrations in the State (primary market); not for secondary market transactions that occur in the State.

An "offer" or "offer to sell" would include which of the following? I A sale of a security II An offer of a security III An offer of an interest in a security IV The solicitation of an offer to buy a security

II, III, IV An "offer" or "offer to sell" is defined as any attempt to offer to dispose of a security; or a solicitation of an offer to buy a security or an interest in a security; for value. Do not confuse an "offer" (the attempt to sell) with a "sale" (which is a "done deal"). A "sale" is defined as a contract to sell or dispose of a security, or an interest in a security, for value.

Which of the following is NOT defined as a security under the Uniform Securities Act?

Individual retirement account Under the Act, IRAs and Keoghs are not defined as securities. Variable annuities are securities under the Act (since the purchaser bears the investment risk), as are unit investment trusts and commodity option contracts.

Which of the following is defined as a security?

Mutual fund held in an IRA IRAs and Keoghs are types of retirement plans - they are not securities. On the other hand, a mutual fund is a security.

Which issue would be subject to registration under the Uniform Securities Act?

Nanotech Corporation, (OTCBB listed), selling an additional common stock issue Exempt securities under the Uniform Securities Act include bank issues, insurance company issues and municipal issues. The corporate issues that are exempt under State law must be either exchange or NASDAQ listed. Note that the OTCBB (Over-The-Counter Bulletin Board) consists of stocks that do not meet NASDAQ listing standards - basically penny stocks - and these are non-exempt under State law.

The Administrator may summarily deny or revoke the exemption of which type of security?

Non-Profit Charitable Organization Issues Affinity fraud is a "hot button" issue for State Administrators. "Church" bond offerings are typically bought by members of that church who are usually quite trusting individuals, and there have been some big frauds that have occurred because they trusted another member of the church who offered them securities that turned out to be worthless. Therefore, the Administrator has the power to deny or revoke the exemption from registration given these issues under State law. On the other hand, Canadian Government securities, Federal Credit Union issues and Insurance Company issues are all exempt securities under State law where the exemption cannot be summarily denied by the Administrator (either because the issuer is "trusted," like the Canadian Government; or the issuer is regulated under other Federal or State laws, such as insurance companies, credit unions and banking institutions).

Filing of advertising with the Administrator is required for which one of the following?

Options Clearing Corporation securities Filing of advertising with the State cannot be required for exempt securities; exempt transactions; or for federal covered securities. U.S. Governments and municipals are exempt securities. NYSE listed, NASDAQ listed and investment company securities are federal covered securities. Options are non-exempt securities and are not federal covered, so the Administrator can require filing of advertising for these.

If an initial public offering of a security is going to be sold only in one State, the registration procedure to be used is Registration by:

Qualification Registration of an initial public offering that will take place only within one State can only be performed by Registration by Qualification. This is the most detailed registration procedure, because there are no Federal filings upon which the Administrator can rely. Registration by Coordination is used when an issuer wishes to coordinate a current SEC registration with registrations in the States. This method can be used for both initial public offerings of companies; and for offerings by companies that already have shares outstanding that have been registered under the Securities Act of 1933. Registration by Filing is only available to "seasoned" companies that already have shares outstanding that have been registered under the Securities Exchange Act of 1934.

What is defined as a security under Uniform State Law?

Real Estate Investment Trust A fixed annuity is an insurance product - it is not a security (however, a variable annuity is a security). A dividend is not a security - it is a payment received from an equity security. A Real Estate Investment Trust is a security because the real estate is being managed by a third party for a group of passive owners. A real estate condominium is not a security - it is residential property.

An officer of a company that wishes to register shares in a State in a "non-issuer" distribution, would rely on which registration procedure?

Registration By Filing Registration by Filing 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 the Registration by Filing procedure, since it is the simplest registration method.

All of the following are defined as a "State" under the Uniform Securities Act EXCEPT:

San Juan Islands "State" is defined under the Act to be any state, territory, possession of the United States, the District of Columbia, and Puerto Rico. The San Juan Islands are part of the State of Washington; they are not a territory or possession.

A broker-dealer is registering a security in a State by coordination. In doing so, the broker-dealer files the necessary paperwork with the SEC and is compliant with the:

Securities Act of 1933 Registration by Coordination allows an issuer to use its SEC-registration documents under the Securities Act of 1933 as its registration documents in the State. When the SEC registration is effective, registration in the State is effective as well (as long as the required State filing fees are paid.) Also note that ERISA stands for the Employee Retirement Income Security Act of 1974, which sets the rules for corporate pension plans.

Federal covered securities are subject to all of the following EXCEPT:

State registration requirement Federal covered securities are major exchange listed companies and investment company securities that are registered federally with the SEC. These are no longer required to be separately registered in each State; however the State can still require a notice filing for these offerings. Nothing is exempt from federal and state anti-fraud statutes.

On January 2nd, an issuer files a registration statement with the State Administrator for a new issue of common stock. 14 months later, the offering has not been completed and the issuer wishes to continue selling the securities until all of the common shares have been placed with the public. Which statement is TRUE?

The issuer can continue to sell the shares because the registration expires only when the sale is complete The basic rule for registration statements filed with the Administrator for securities offerings is that they are good for 12 months. However, if the offering takes longer than 12 months, the registration is still good until the sale is complete. The exact wording of the Uniform Securities Act is: "Every registration statement is effective for one year from its effective date, or any longer period during which the security is being offered or distributed in a non-exempted transaction by or for the account of the issuer or other person on whose behalf the offering is being made or by any underwriter or broker-dealer who is still offering part of an unsold allotment or subscription taken by him as a participant in the distribution, except during the time a stop order is in effect."

A corporation listed on the American Stock Exchange (NYSE American) wishes to distribute a stock dividend to its shareholders. Which statement is TRUE?

The transaction is exempt and the shares do not have to be registered in the State This transaction falls under 2 exemption provisions - and the issuer could rely on either one. Because the company is American Stock Exchange listed (the AMEX has been renamed the NYSE American, but this is unlikely to show on the exam), its shares are exempt from registration in the State (the "blue chip" exemption). Because no commissions or other remuneration are paid when a stock dividend is distributed to shareholders, the issuer could rely on this exemption provision as well.

Robert is an agent registered in the State of New York, with most of his clients living in the Buffalo area. He has a client who has inherited stock of a Canadian bank listed on the Toronto Stock Exchange and the client wishes to sell these securities to his relatives in Toronto. Which statement is TRUE about this transaction under the provisions of the Uniform Securities Act?

There is no requirement for the securities involved to be registered in the State because the transaction is exempt Non-issuer transactions in securities that are U.S. exchange listed or NASDAQ listed are exempt from State registration requirements (because the IPO of that security was either registered in the State already or a notice filing was made in the State). Secondary market trades of securities listed on the Toronto Stock Exchange are given a similar exemption. Also note that a Canadian bank issue is not exempt - only U.S. bank securities are exempt - making Choice C incorrect. (What is odd about this question is that the securities are moving from Canada to New York to Canada again, so because they originated in Canada, we are presuming that they are properly registered there! Of course, that is also not our problem here in the U.S.!)

The Administrator CANNOT deny an exemption from registration for a(n):

U.S. Government bond The Administrator is permitted to modify the Uniform Securities Act in his or her State, and thus, can change any "exempt" transaction. However, the Administrator cannot change the exemption from registration given to the securities specified as exempt under the Act, such as U.S. Government or municipal bonds.

Which of the following securities can be registered by qualification in a State?

Voting Trust Certificates Fractional Interest in an Oil and Gas Program Direct Participation Program Registration by Qualification in a State is the most difficult method and can be used for ANY security - and all of the choices listed are defined as securities. It is typically used for a company's initial public offering where there is no Federal SEC registration, so the State has no other information about the issuer and the issuer must "qualify" to have its securities registered in the State. In contrast, if an issuer is registering with the SEC, it can use the Federal SEC registration as its State registration document under "Registration by Coordination." If an issuer has previously registered securities with the SEC and State, it is a "seasoned issuer" and the State knows who the issuer is. Then the issuer can use the simpler method of Registration by Filing (Notification) in the State.

Under the Uniform Securities Act, which of the following securities is non-exempt?

Warrants issued by industrial corporations Warrants issued by industrial corporations are non-exempt. Under State law, senior securities (bonds and preferred stock) and "equal" securities (warrants or rights) of companies already listed on a recognized stock exchange are exempt. This is termed a blue chip exemption. Also note that the securities of issuers listed on the major exchanges (NYSE, AMEX (NYSE American) and NASDAQ) are now federal covered securities and cannot be required to be registered in the State. Securities of issuers subject to ICC regulation (common carriers) are exempt. Issues of banks and savings and loans are exempt (these are regulated by the State banking laws).

All of the following statements are true regarding the private placement exemption under Uniform State Law EXCEPT:

all payments made by subscribers must be deposited to an escrow account until the offering is completed To qualify for a private placement exemption within a State, offers can be made to no more than 10 persons in a 12 month period. All purchases must be made for long term investment; and no commissions may be paid to anyone other than for transactions with financial and institutional investors. It is not true that all payments made by subscribers must be deposited to an escrow account until the offering is completed. The issuer or broker-dealer handling the offer is allowed to accept monies from buyers of the issue; and may deposit the monies to their own accounts.

To qualify for the private placement exemption, all of the following are required EXCEPT:

all purchasers must reside in one state To qualify for a private placement exemption, no more than 10 persons can purchase the issue within a 12 month period under the Act. All purchases must be made with investment intent; and no commissions can be paid to anyone except for solicitations of financial and institutional investors. There is no requirement that all of the purchasers reside in one state - the limitation is 10 purchasers of the issue per year. The purchasers can reside anywhere within the United States.

If a registration is found to be incomplete, the issuer must send the Administrator a(n):

amendment to the registration application If a registration statement is found to be incomplete, there is no requirement for a complete new filing. The additional information is provided by filing an amendment with the Administrator.

Under the Uniform Securities Act, the definition of "guaranteed" means that the security is guaranteed by another party:

as to payment of dividends or interest; and as to principal amount The term "guaranteed" is defined as guaranteed as to payment of principal, interest, or dividends by someone other than the issuer

Under the Uniform Securities Act, which statement is TRUE regarding the anti-fraud provisions for exempt and non-exempt securities? The anti-fraud provisions apply to:

both exempt and non-exempt securities Both exempt and non-exempt securities; and exempt and non-exempt transactions are subject to the anti-fraud provisions of the Uniform Securities Act. Exempt securities and exempt transactions are not subject to the Act's securities registration and filing of advertising requirements.

The Administrator:

cannot issue stop orders retroactively but can vacate them retroactively As a general rule, the Administrator cannot issue an order stopping the sale of a security, or denying or revoking a registration, retroactively. However, if the Administrator were to issue a stop order because of something trivial, like not paying the required fee, then once the fee is paid, the stop order would be vacated, and this is done retroactively to the date of the original stop order.

An existing customer of an agent who is registered in State A contacts the agent to inquire about purchasing 1,000 shares of XYZZ Corp. - a thinly traded stock that is sometimes quoted in the Pink Sheets. The agent attempts to locate the shares for the customer, but they are not available. Three weeks later, a new customer contacts the agent, asking him to sell 1,000 shares of XYZZ Corp. that he owns. The agent contacts the existing client to see if he is interested in purchasing these shares. This action is:

considered to be an offer to sell made by the agent An "offer" or "offer to sell" is defined as any attempt to offer to dispose of a security; or a solicitation of an offer to buy a security or an interest in a security; for value. The agent has contacted the existing client, to see if he is interested in buying the 1,000 shares that this new customer wishes to sell. Thus, the agent is making an offer to sell the securities to the existing client. Do not confuse an "offer" (the attempt to sell) with a "sale" (which is a "done deal"). A "sale" is defined as a contract to sell or dispose of a security, or an interest in a security, for value.

Under the Uniform Securities Act, the sale of securities to financial and institutional investors is known as a(n):

exempt transaction The sale of securities to financial institutions is an exempt transaction - therefore, the securities do not have to be registered. However, the agent and broker-dealer handling the transaction must be registered unless they are excluded from the definition of "agent" or "broker-dealer."

Under the Uniform Securities Act, if a broker-dealer receives an unsolicited customer order to buy a security for a customer, this is an:

exempt transaction, whether the security involved is exempt or non-exempt Unsolicited customer orders are defined as an "exempt transaction" under the Act, whether the securities involved are exempt or non-exempt.

Registration by Coordination permits simultaneous State registration of securities when the SEC registration:

filed under the provisions of the Securities Act of 1933 becomes effective Registration by Coordination permits simultaneous State registration of securities when the SEC registration filed under the provisions of the Securities Act of 1933 becomes effective.

All of the following conditions must be met for an investment to be defined as a "security" under the Uniform Securities Act EXCEPT:

guaranteed rate of return A "security" is defined as an investment in a common enterprise for profit with management provided by another party (that would be a "third" party). Generally, securities do not have a guaranteed rate of return.

Registration by Qualification would be used by an issuer that:

has never issued securities previously in that State nor has it registered securities with the Securities and Exchange Commission Registration of a first time public offering that will take place only within one State can only be performed by Registration by Qualification. This is the most detailed registration procedure, because there are no Federal filings upon which the Administrator can rely. Registration by Coordination is used when an issuer wishes to coordinate a current SEC registration with registrations in the States. This method can be used for both initial public offerings of companies; and for offerings by companies that already have shares outstanding that have been registered under the Securities Act of 1933. Registration by Filing is only available to "seasoned" companies that already have shares outstanding that have been registered under the Securities Exchange Act of 1934. Where an issuer is domiciled has no effect on state registration requirements for securities of that issuer - if the securities are to be offered or sold in the state, then they must be registered in that state; or they must be exempt from registration.

All of the following securities are exempt from registration under the Uniform Securities Act EXCEPT:

preferred stock issued by industrial corporations Stock issued by industrial corporations is non-exempt. Under State law, senior securities (bonds and preferred stock) of companies listed on a recognized stock exchange are exempt. This is termed a blue chip exemption. Also note that the securities of issuers listed on the major exchanges (NYSE, AMEX (NYSE American) and NASDAQ) are now federal covered securities and cannot be required to be registered in the State. Securities of issuers subject to ICC regulation (common carriers) are exempt. Issues of banks and savings and loans are exempt (these are regulated by the State banking laws).

The Administrator alleges that an agent of an out-of-state broker-dealer solicited the sale of an unregistered security within that State. The broker-dealer must:

provide evidence that the security was exempt from registration The Administrator is alleging that the broker-dealer solicited the sale of an unregistered security in that State. To solicit a transaction in the State, unless an exemption is available, the broker-dealer, agent, and security, must be registered in that State.

The term "blue skying" a new issue refers to:

registering the issue in each State where the securities will be offered to customers State "blue sky" laws predated the Securities Act of 1933. The larger states had their own state registration laws to stop swindlers from selling their citizens securities that represented just a piece of the "big blue sky" (i.e. crap). Thus, state securities registration laws are commonly known as the "blue sky" laws.

All of the following statements are true about Registration by Filing EXCEPT:

registration becomes effective 10 business days after the filing is complete Registration by Filing becomes effective 5 business days after the filing is complete. To qualify, the issuer must be in business continuously for the past 3 years, and be profitable in 2 of the last 3 years. The issuer cannot have defaulted on any interest payments in the last year and must include copies of the offering materials (Prospectus) in the filing.

The Administrator can require all of the following regarding federal covered securities offered in a State EXCEPT:

registration of the issue in the State The Administrator cannot require registration of federal covered securities in the State (unless the issuer fails to comply with State requirements for these issues). The State can require a notice filing; can require that the documents filed with the SEC for federal registration (or federal exemption) of the issue be filed in the State; and can require that a filing fee be paid to the State.

The Administrator, in regards to the registration of securities, may do all of the following EXCEPT:

require that the state receive a portion of the offering proceeds as a condition of registration Regarding registration of securities in a State, the Administrator is empowered to impound the proceeds of the sale of the securities until a specified dollar amount is sold (this is typical for so-called "all or none" underwritings, where, if the entire issue is not sold, the deal is canceled). The Administrator can require the filing of original copies of confirmed subscription agreements (these are completed by customers who wish to "subscribe" to the new offering of securities); and can require that a disclosure document (prospectus) be provided to customers. The state administrator cannot require that the state receive a portion of the offering proceeds - the filing fee paid to the state is sufficient!

Registration by Coordination permits:

simultaneous Federal and State registration Registration by Coordination permits the same information that is filed with the SEC to register a new issue under Federal law, to be filed with the State for simultaneous State registration.

If the State Administrator determines that a securities offering has been made on unfair terms, he or she may do all of the following EXCEPT:

suspend the registration statement without providing an opportunity for a hearing The Administrator is allowed to deny or revoke the registration of a securities offering 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.

The State Administrator is supervised by:

the State secretary The State Administrator is part of the Secretary of State's office in the majority of States. Also note in some States, the State Administrator is part of the Attorney General's office, or the State Department of Corporations, Commerce, Business Services, or the State Securities Commission, none of which are offered as choices.

All of the following are defined as either a "sale" or an "offer to sell" common stock of an issuer EXCEPT:

the gift of the common stock to an employee of the issuer The definition of a "sale" is every contract of sale, contract to sell, or disposition of a security, or interest in a security, for value. The definition of an "offer to sell" is every attempt or offer to dispose of, or solicitation of an offer to buy a security. Thus, Choices A and B fit the definition. In addition, the sale or offer of a security that includes rights or warrants to buy another security is considered to be an offer or sale of the other security (Choice D correct). The gift of a security is NOT considered to be a sale, unless the security is assessable. Common stock is non-assessable, so this is simply a gift, not a sale.

All of the following are considered to be an "offer to sell" a security EXCEPT:

the giving of a stock dividend to holders of that security Before an "offer to sell" a security is made in a state, the issue must either be registered in that state, or must be sold under an available exemption. A stock dividend given by an issuer is excluded from the definition of an "offer to sell" a security, since the holder really is receiving "nothing" - after the dividend is received, he or she holds more shares, with each one being worth proportionately less. Included in the definition of an "offer to sell" is: The gift of an assessable security (which obligates the recipient to make future payments) A security that is "given" in consideration for the purchase of another security, since by tying the "gift" to the purchase of the other security, that person is really buying both, and both must be registered in that State A rights or warrants offering on an underlying security, since the rights give the holder the right to buy the underlying stock from the issuer at a pre-determined price.