Chapter 1 | The Uniform Securities Act

*Guaranteed* means guaranteed as to payment of *__________*. Guarantees are issued by someone other than the issuer.

*principal, interest, or dividends* [1.3]

An IAR *would include ______* who must be registered as IARs under the Uniform Securities Act.

*solicitors* - Solicitors include salespersons and others who refer customers to IAs *for compensation*. - In order to *solicit business* or be paid a *referral fee*, the person *must be registered*. [1.2]

*Broker-Dealers* are *required* to have a *________* for the *activities of its agents* which complies with securities laws and regulations, and FINRA rules.

*supervisory system* [1.1]

A Federal Covered Adviser is exempt from state registration as federal law preempts state law, but may be required to *file a notice* with the states in which *____ or more clients* transact business with the Federal Covered Adviser.

*6 or more clients* [1.2]

An *______* is the designated *state official* who administers the Uniform Securities Act and enforces other securities regulations in a given *state*.

*Administrator* [1.2]

Assistants or interns who are registered are *permitted to act as an ______*.

*Agent* [1.1]

Although an issuer may have to file in a state when issuing securities, registration as a *______ would not be required of the issuer*.

*Broker-Dealer* [1.2]

*State* means any state, territory, or possession of the United States, *including the ________*.

*District of Columbia and Puerto Rico* [1.3]

*________* are included in the list of "Exempt Securities" but are *NOT* included in *THIS* list.

*Insurance Co. Securities and Federal Savings & Loans* [1.1]

*Portfolio Managers and Financial Planners* would be examples of an *________*.

*Investment Adviser (IA)* [1.2]

An Investment Adviser may also be registered as a Broker-Dealer and be paid an advisory fee separate from any commission it earns on securities transactions. Acting in *both* capacities on the same transaction *requires __________* to the client.

*a written disclosure* [1.2]

If an *IAR is not required to register* in a state, the IAR would still be *subject to the ________*.

*anti-fraud provisions* [1.2]

"Purported Gifts" are *not ________. Purported gifts are sales* which appear to be a gift such as a gift of assessable stock.

*bona fide gifts* [1.3]

To be considered a Federal Covered Adviser, the IA *must actually register with the SEC*. Persons who meet the federal definition bout have *________* with the SEC *are NOT* "Federal Covered Advisers".

*failed to register* [1.2]

A Broker-Dealer could also be *an ______* if it was selling its own securities.

*issuer* [1.2]

The term *"person"* does *NOT include ______*.

*minors* [1.1]

An individual investor selling stock that he or she owns to another investor would be a *______* transaction.

*non-issuer* [1.2]

When issuing *certificates of interest in __________*, the company is not considered to be an "issuer", even though the Uniform Securities Act's *definition of "security" includes such certificates of interest*.

*oil, gas, or mining titles or leases* [1.2]

*Assessable Stock*

- A class of stock in which the issuing company has the ability to impose future levies on stockholders for additional funds (historically, no restrictions were placed on these additional assessments with regard to limitations on amounts or frequency). - A "gift" of assessable stock *is considered a "sale"* because the owner would no longer be liable for future assessments (received "value") by gifting the stock. [1.3]

*Federal Covered Adviser*

- An investment adviser who comes within the definition of an IA under the federal Investment Advisers Act of 1940. - Such an IA must *register with the SEC only*. - A Federal Covered Adviser is exempt from state registration as federal law preempts state law, but may be required to *file a notice* with the states in which *6 or more clients* transact business with the Federal Covered Adviser. [1.2]

The term *Broker-Dealer does NOT include* the following persons:

1. *Agents* 2. *Issuers* 3. *Banks, savings institutions, and trust companies* 4. A person who has *no place of business* in a state if the firm effects transactions in the state *exclusively* 5. A person who has *no place of business* in this state if the person is licensed under the securities act of a state in which the person maintains a place of business and the person offers and sells in this state to a person who is an existing customer of the person and whose residence is not in this state. [1.1]

*Broker-Dealer Exclusions* - Agent would also *not include*:

1. *An individual who represents a B/D in one state and is servicing an existing client who is temporarily in another state* (i.e., if the client is away on vacation or business). 2. A *partner, officer, or director* or a B/D or issuer (such executives would only be considered an agent if they were to personally effect transactions). [1.1]

*Excluded* from the definition of an Investment Adviser are:

1. *Investment Adviser Representatives (IARs)* 2. Institutions such as *banks, savings institutions, trust companies, investment companies*, and other financial intermediaries (even if they charge a fee for advisory services). These institutions are excluded from registering as an IA, but *IAs that provide advice about securities issued by institutions, such as banks, would NOT be excluded from the definition*. 3. *Lawyers, Accountants, Teachers, and Engineers* are excluded if their advice is *incidental* to the practice of their professions (Remember: *LATE*). 4. *B/D's and their Agents* if the *advice is incidental to their normal brokerage activities and no extra compensation is charged*. 5. *Publishers or any news, business, or financial publication or service* (newspapers, magazines, newsletters), whether hardcopy or electronic, who give *general advice about securities which is not specific to certain clients and does not respond to specific questions from readers*. 6. *Federal Covered Advisers* 7. *Employee Benefit Plans* (i.e., 401k Plan) [1.2]

The term Agent *does not include* an individual who *represents an issuer* in effecting *Exempt Transactions* such as:

1. *Isolated non-issuer transactions* (secondary market transactions by investors). 2. Transactions in certain *covered securities* (securities sold to qualified purchasers or securities sold in a private placement). 3. *Transactions with investing employees, partners, or directors of the issuer if no commission or other remuneration is paid*. [1.1]

The term Agent *does not include* an individual who *represents an issuer* in effecting Transactions in *some Exempt Securities* which are:

1. *U.S. Government* Securities 2. *Municipal* Securities 3. *Canadian Government* Securities (including Securities issued by any Providence of Canada) 4. *Banks* 5. *Promissory Notes* and *Investment Contracts* Note: *Insurance company securities and Federal Savings and Loans* are included in the list of "Exempt Securities" (later in this book) but are *not* included in *this* list. [1.1]

Exceptions and Examples* to an offer, offer to buy, or offer to sell

1. An offer to buy or offer to sell is *not* made when a radio or television program originating outside of a state is received or heard in the state. 2. An offer to buy or sell is *not* made when a newspaper or other publication: - is not published in a state but is sold in a state. - is published in a state but has more than *two-thirds of its circulation outside of the state during the past 12 months*. 3. Agents who inform customers that they can accept offers to buy or to sell are technically making an *offer to buy or sell*. [1.3]

*Excluded* from the definition of a Federal Covered Adviser, and therefore exempt from SEC registration are:

1. IAs who give advice on *U.S. Government securities only* 2. *Banks and Bank Holding Companies* 3. *Publishers of general advice about securities* 4. *Lawyers, Accountants, Teachers, and Engineers (the LATE professions)*

*Included* in the definition of a *Federal Covered Adviser* is any IA who:

1. Is an adviser to a *registered investment company*, or 2. Manages an investment portfolio with AUM of: - $100 million or more *may* register with the SEC - $110 million or more *must* register with the SEC Note: If a Federal Covered Adviser's AUM fall below $90M, the adviser must withdraw its federal registration unless an exception exists. [1.2]

IAR *does NOT include* employees who:

1. Perform *only clerical tasks* (such as a receptionist), or 2. Only solicit sales of *fixed annuities* [1.2]

A *Federal Covered Security* is a security that is "covered" by federal law under the Securities Act of 1933. *Included* in the list of securities that must be registered with the SEC are:

1. Securities *listed or authorized for listing on a national stock exchange* (i.e., NYSE or on the *NASDAQ National Market System*). 2. *Investment company or pooled investment fund shares* (i.e., mutual funds). 3. *Securities sold to "qualified purchasers"* (i.e., wealthy individuals, couples, family businesses, or a trust sponsored by qualified persons). [1.3]

The key points of the definition of an Investment Adviser are *ABC*:

1. They provide *A*dvice about *securities* (directly or indirectly) 2. as a *B*usiness 3. for *C*ompensation in any form (such as advisory fees) - Note: Within these three points, there is *no requirement that a client implement the advice, or that the firm manages the funds*. [1.2]

The term Agent *does not include* an individual who *represents an Issuer* in effecting:

1. Transactions in *some Exempt Securities* which are: - U.S. Government Securities - Municipal Securities - Canadian

The following *are considered* Federal Covered Securities because an Exemption exists from registration at the federal level under the 1933 Act:

1. U.S. Government securities 2. *Municipal bonds*, but only if *offered outside* the state of issue (interstate) 3. Securities that are unregistered and issued as private placements under SEC rules such as Regulation D offerings [1.3]

The following transactions would *not* be considered to be a "sale":

1. a bona fide pledge or loan of securities 2. a stock dividend 3. shares acquired as a result of a merger or reorganization 4. converting a bond to a stock [1.3]

The following investment products are specifically *excluded* from the definition of a *security*:

1. fixed life insurance policies 2. endowment policies 3. fixed annuity contracts 4. commodity futures contracts 5. collectibles (including antiques) 6. precious metals 7. real estate - Remember that firms and persons would *not be required to register* when giving advice about investment products excluded from the definition of a security. [1.3]

An *offer, offer to buy*, or *offer to sell* is any attempt to solicit a purchase or sale of a security *for value*. An offer is considered to have been made in a state when:

1. it *originates* in the state, 2. it is *directed* to the state, or 3. it is *accepted* in the state [1.3]

A *Sell* or *Sale* is any contract of sale or contract to sell a security *for value* (as opposed to a bona fide gift). The following transactions *would* be considered to be a "sale":

1. receiving a security as a bonus for buying another security or product, 2. receiving rights or warrants to buy another security, and 3. receiving a "gift" of assessable stock [1.3]

*Solicitation*

Any *oral, written, or other communication used to offer or sell investment company shares* excluding any proxy statement, report to shareholders, or other disclosure document relating to a security covered under Section 18(b)(2) of the Securities Act of 1933. [1.3]

*Investment Adviser Representative (IAR)*

Any individual partner, officer, director, employee, or associate of an IA who: - *makes recommendations* or *gives advice* regarding *any securities*, - *manages* client's accounts/portfolios, - *determines the suitability* of recommendations, - *solicits, sells*, or *negotiates* investment advisory services, or - *supervises employees who perform the above listed services*. [1.2]

*Agent*

Any individual who *represents a Broker-Dealer or an issuer* in effecting or attempting to effect purchases or sales of securities. - RR's are agents of their brokerage firms (including RR's who are independent contractors). - *An individual that represents an issuer in the sale of an interest in a Limited Partnership is an agent and must be registered as such*. - Although agents are generally compensation by commissions, *receipt of commissions is not a requirement for being an agent*. - If an agent represents more than one B/D, *registration with and supervision by both firms is required (dual registration)*. [1.1]