Series 63 Set #3
grounds for administrator's cancellation
*cancelled without a hearing* if, the registered is: 1) no longer living 2) has ceased to do business 3) mentally incompetent 4)cannot be located after a reasonable search --*this is not the result of a violation of the rules
fraudulent advice (civil liability)
+ any loss due to advice + interest (at state determined rate) + court costs & reasonable attorney fees - income received from the security
list the 7 acceptable soft-dollar arrangements:
1) Traditional research reports and related publications 2) discussions with research analysts 3) software for analyzing portfolios 4) certain types of trading software 5) marker and economic data services 6) coverage of attendance fees for a conference/seminar where many executives discuss company performance
securities sold in violation of act (civil liability)
+ full purchase price of securities + interest (at state determined rate) + court costs & reasonable attorney fees - income received from the security
exempt securities
1) Gov & municipalities, IF: -US -Canadian -ally of US 2) exchange listed-securities 3) securities sold to "qualified purchasers" which is any person with >= $5M in investments 4) investment companies (mutual fund) securities 5) Reg D, Rule 506 -if NOT SOLICITED to ANY non-accredited investors, sold to no more than 35 non-accredited, -unlimited amount of accredited investors
year limit statutory disqualification for any securities related misdemeanor or any felony conviction
10 years. always. anything beyond -- however, all history must be disclosed, it's just the L10Y that automatically count as statutory disqualification
According to the Uniform Securities Act, an employee who is not registered as an agent may do which of the following? A. Clear transactions B. Accept unsolicited orders on behalf of an agent C. Participate in an exempt transaction with a registered agent D. Participate in the distribution of an exempt security
A A person need not be registered as an agent to post records (clear transactions) or perform operational tasks.
According to the Uniform Securities Act, who would be considered a broker-dealer in State B? A. A sole proprietor located in State A who has several clients in State B B. A corporation domiciled in State B that also issues securities within that state C. A brokerage firm registered in State A that does not have an office in State B and does business exclusively with other broker-dealers in State B D. An agent employed by a brokerage firm in State A who cold-calls clients in State B
A A sole proprietor can be a broker-dealer. If a sole proprietor located in State A chooses to effect transactions for clients in State B, he must register in State B as a broker-dealer. Agents and issuers are not broker-dealers, choices (b) and (d). Neither is an entity without a place of business in a state that deals only with institutional investors, choice (c).
Sales of viatical investments can be made only to suitable investors. Which TWO of the following investors are considered suitable? I. An accredited investor under Regulation D II. Anyone with a minimum net worth of $150,000 and gross income last year of at least $100,000, or a minimum net worth of $250,000 III. Anyone who is in the highest marginal tax bracket and is in need of liquidity IV. Anyone who has been specifically approved by the state Administrator A. I and II B. I and III C. II and III D. III and IV
A A viatical investment involves the purchase of an interest in an insurance policy covering the life of an individual. The purchase may be for a whole or fractional interest in the policy. Since it is unknown when the insured will die and the funds invested are not readily accessible on demand, NASAA has established specific suitability requirements for viatical investments, which are stated in choices (I) and (II). Viatical investors must either be accredited investors according to Regulation D or must meet one of the following financial standards. Minimum net worth of at least $150,000 (not including their residence) and an annual income of $100,000, or Minimum net worth of at least $250,000 (not including their residence)
A client has a $5,000,000 account with an objective of income only. Under the Uniform Securities Act, an agent who has discretionary authorization for the account could: A. Not buy a speculative stock without the client's approval B. Speculate with 5% of the client's assets C. Speculate with any amount that could be reasonably justified D. Not purchase equities in the account
A Regardless of the account size, any amount of speculative investing would be inappropriate in an account with an objective of income only
The Administrator has the right to deny, revoke, or suspend the registration statement of an issuer of securities. Under the Uniform Securities Act, which issuer(s) may be subject to this action? I. A company whose securities are listed on the Canadian National Exchange II. A nonprofit corporation III. A credit union IV. A municipality A. I only B. I and II only C. I, II, and III only D. I, II, III, and IV
A The other entities listed issue exempt securities. As a result, they would not be required to file a registration statement.
Jeff White and Mary Johnson have formed a corporation to start a new broker-dealer. They are the sole shareholders. Which of the following grounds could the Administrator use as a basis for denying their application? I. Jeff's liabilities currently exceed his assets and he is having trouble paying his bills II. Three years ago, Mary's agent registration was suspended for two weeks III. Eight years ago, Jeff pled guilty to one felony count of tax evasion IV. Neither Jeff nor Mary has previous experience in operating a broker-dealer A. III only B. I and III only C. I, II, and III only D. I, II, and IV only
A When an application is made for a broker-dealer registration, the application may be denied based on the history and condition of the applicant (the broker-dealer) or its controlling persons (Jeff and Mary), officers, or directors. The fact that Jeff was convicted of a felony within the last 10 years could result in denial of their application. If the applicant is currently subject to a suspension, the application could be denied. However, Mary's suspension has ended. Insolvency could also be used as grounds for denial, but the Administrator must find that the broker-dealer is insolvent, not an individual controlling person. Lack of experience alone cannot be used as grounds for denial.
Under the Uniform Securities Act, which of the following issuers are NOT required to file a registration statement with the state Administrator? Companies with stock quoted on the Over-The-Counter Bulletin Board (OTCBB) Federal savings and loan associations Registered investment companies Companies registered with the Securities and Exchange Commission (SEC) A. II and III only B. I and IV only C. II, III, and IV only D. I, II, III, and IV
A. Choice (II) is an exempt issuer and would not be required to file a registration statement. Choice (III) is an issuer of federal covered securities and would not be required to file a registration statement. It may, however, need to notice-file with the Administrator. Notice filing applies to certain federal covered securities. The notice filing includes the Consent to Service of Process, payment of a filing fee, and may include copies of material filed with the SEC as part the issuer's federal registration. This is NOT considered a registration. With regards to choices (I) and (IV), companies that register with the SEC may still be required to file a registration statement with the Administrator -- for example, securities that are quoted on the Over-The-Counter Bulletin Board (OTCBB).
All of the following securities are considered federal covered, EXCEPT a(n): A. Regulation D, Rule 505 offerings B. Regulation D, Rule 506 offerings C. Investment companies registered under the Investment Company Act of 1940 D. Bank holding companies listed on national exchanges
A. Securities issued under Rule (Section) 505 of Regulation D are not federal covered securities. They must be registered in every state in which they are sold, unless they qualify for another exemption. Securities issued under Rule 506 of Regulation D, however, are federal covered. All securities listed on the national exchanges are federal covered securities.
Which of the following statements is TRUE concerning a federal covered security? A. The Administrator may require the issuer to pay a registration fee B. The Administrator may subject the issuer to a state review C. The Administrator may not require the issuer to file a consent to service of process D. The Administrator may not bring enforcement action if fraud is involved
A. The Uniform Securities Act sets limits on the powers of the Administrator concerning federal covered securities. The Administrator may require: the paying of a registration fee, the filing of a Consent to Service of Process, the filing of certain documentation previously filed with the SEC. The Administrator may bring enforcement action if fraud or deceit is used in the sale of a security. The Administrator may not subject the issuer to a state review. This occurs when a state has the authority to allow or disallow a security to be offered in a state and is sometimes referred to as a merit review.
Under the Uniform Securities Act, a person effecting transactions in commodities: A. Is subject to oversight by the Administrator B. Does not meet the definition of an agent C. Avoids the definition of an agent only if the person's duties are merely clerical D. Is automatically considered an agent if her employer is a broker-dealer
B Since commodities are not securities, a person effecting transactions in commodities is not considered an agent.
A broker-dealer agent enters an order ticket for a customer. The order ticket must contain all of the following information, EXCEPT the: A. Time of entry B. Price of the security at the time of receipt C. Price of the security at the time of execution D. Agent's identifying information
B An order ticket does not need to include the price of the security at the time the order was received. It does need the price at the time it was executed as well as the time of execution (or cancellation). The ticket should also identify the personnel (if any) responsible for the account and the specific individual who entered the order on the client's behalf.
An agent of a broker-dealer executes a securities transaction that is not recorded on the broker-dealer's books and records. According to NASAA Statements of Policy, this would NOT be an unethical business practice if the agent had done which of the following? A. The agent received the broker-dealer's oral authorization to execute the transaction B. The agent received the broker-dealer's written authorization prior to the execution of the transaction C. The agent received the broker-dealer's written authorization after the execution of the transaction D. This type of transaction is considered an unethical business practice regardless of receiving the broker-dealer's authorization
B Generally, it is considered an unethical business practice for an agent to effect securities transactions and not record them on the broker-dealer's books and records. However, according to the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, an agent may effect transactions not recorded on the books and records of the broker-dealer if the transactions are authorized in writing in advance by the broker-dealer of their execution.
Which of the following statements is NOT TRUE regarding licensing and registration standards for broker-dealers? A. The Administrator may require that a broker-dealer have a minimum net capital as a condition of registration B. A broker-dealer must notify the SEC that it intends doing business in a state before it can transact any business C. The Administrator may require registered broker-dealers to post bonds and may determine their conditions D. The Administrator may provide for a qualification examination, which may be written, oral, or both
B Licensing and registration standards for broker-dealers do not include SEC notification of intent to transact business in a particular state. All of the other choices are correct.
You are employed by a bank with the title financial adviser. In your capacity at the bank, you are required to hold a general securities registration in order to provide information on securities and to process orders. Your sponsoring broker-dealer is an affiliated firm owned by the bank holding company that also owns the bank you work for. A client comes to the bank seeking advice on certificates of deposit offered by the bank as well as mutual fund investments. Under the Uniform Securities Act, which of the following choices BEST describes what you are allowed to do when giving advice to the client? A. You are not allowed to advise the client since the bank is not an investment adviser B. You may give the client advice since the broker-dealer and the bank are excluded from the definition of an investment adviser C. You may give the client advice only on the mutual funds since certificates of deposit are governed by banking rules and you are registered with a broker-dealer D. You may not give advice on the certificates of deposit since the bank is not a registered investment adviser
B Since both the bank and the broker-dealer are excluded from the definition of an investment adviser, you may provide advice on these products without registering as an investment adviser or investment adviser representative. You are acting within the scope of your employment with the broker-dealer.
Which of the following choices is considered a fraudulent act? A. Withholding any fact about an issuer in discussions with clients B. Omitting a fact that is relevant to making an investment decision C. Misstating a fact about an issuer in a discussion with a client D. Neglecting to obtain relevant information about an investor
B. This is an example of a question you could encounter where the answers may appear to be almost identical. Withholding material facts is considered fraudulent. Material facts are those that a reasonable person would want to know in order to make an informed investment decision. Withholding any fact about an issuer sounds similar, but is too broad to rise to the level of fraud. Remember, **fraud implies intent to deceive.**Withholding any fact is not fraud. Here is why. Think of the phone number of an issuer, or other random items that may be interesting. Those are facts. Withholding that information is not fraud, since it may not be relevant to making an informed investment decision. Misstating a fact could be accidental and, therefore, not fraud. Neglecting to obtain relevant information is not fraud. It is a bad business practice. It may be unethical, but it is not defined as fraud.
Which of the following individuals would NOT be considered an agent under the Act? A. A person representing a broker-dealer in nonexempt transactions B. A person representing an issuer who does not receive commissions in effecting transactions with the issuer's existing employees C. A person representing an issuer who receives commissions in effecting transactions with the issuer's directors D. A person employed by a broker-dealer as a sales assistant who occasionally accepts client orders
B. A person representing an issuer effecting transactions with an existing employee, partner, officer, or director of an issuer, who does not receive any commissions or other payment directly or indirectly for soliciting the order in that state, will not be considered an agent. An employee of a broker-dealer who performs only clerical functions is not considered an agent. However, *if that employee accepts client orders (even unsolicited),* then that person is classified as an agent and must register.
record maintenance requirements
BD 3 years for all ads (offering circulars, pamphlets), client correspondence, client tickets, and *customer complaints* 6 years: blotters, general ledgers, customer statements lifetime: articles of incorp, partnership agreements, board meeting minutes, stock certificates. 2 years in an accessible place. IA 5 year standard for all docs 2 years in *the principal office*
who can commingle cash?
BDs may commingle cash, must separate securities IAs must seperate BOTH cash & securities
Which of the following choices would fall under the definition of an agent? I. A trust company, bank, or any savings institution II. A sales assistant authorized to accept client orders III. Any person other than a broker-dealer who acts on behalf of a broker-dealer or issuer in effecting sales or purchases of securities A. II only B. III only C. II and III only D. I, II, and III
C Anyone transacting securities business (i.e., accepting orders) on behalf of a broker-dealer or issuer is generally considered an agent. This would include sales assistants who take client orders, as well as registered representatives.
Which TWO of the following actions would fall under the jurisdiction of a state securities Administrator? I. The purchase of options through the Internet by a state resident II. The sale of long-term certificates of deposit by a bank III. The delivery of securities to a customer who is a resident of a particular state IV. The offer of securities by an out-of-state broker-dealer to a resident of the state A. I and II B. I and III C. I and IV D. III and IV
C State securities Administrators have jurisdiction over securities transactions that are: Originated in their state Directed to and received in their state Accepted in their state Delivery of securities to a particular state does not fall under an Administrator's jurisdiction, nor do general commercial banking transactions.
A broker-dealer is opening securities accounts for retail customers at a bank branch. According to the NASAA Model Rules for Sales of Securities at Financial Institutions, what must the broker-dealer's agents do as part of the account opening process? A. Verify that the client is a qualified investor B. Provide the client with a written copy of the networking arrangement between the broker-dealer and the bank C. Make a reasonable attempt to obtain a written acknowledgement from the client that he has received the disclosures required under this rule D. Notify the client of the address and telephone number of the state securities Administrator where he can lodge complaints
C The NASAA Model Rules for Sales of Securities at Financial Institutions state that a broker-dealer must make a reasonable attempt to obtain a written acknowledgement from a customers that he has received the disclosures required under these rules. Under NASAA rules, a client who opens a brokerage account at a bank must be informed both orally and in writing, that securities: Are NOT insured by the FDIC (Federal Deposit Insurance Corporation) Are NOT the same as bank deposits or obligations and are not guaranteed by the bank Have risks—the investor may lose her principal A networking arrangement means a contractual or other arrangement between a broker-dealer and a financial institution pursuant to which the broker-dealer conducts broker-dealer services on the premises of the financial institution where retail deposits are taken. A copy of this document does not need to be provided to clients. There is no requirement that a client be verified as a qualified investor. There are no qualifications to be an investor. An agent may notify the client of the address and telephone number of the state securities Administrator where the client can lodge complaints, but it is not a requirement.
An employee of XYZ Corporation is selling common stock to the public but is not being paid a commission. Under the Uniform Securities Act, which of the following statements is TRUE? A. The employee would be considered an agent of a broker-dealer and would need to register B. The employee would be considered an agent of a broker-dealer but would not need to register C. The employee would be considered an agent of the issuer and would need to register D. The employee would be considered an agent of the issuer but would not need to register
C Under the Uniform Securities Act, an individual representing a nonexempt issuer *in sales to the public* is defined as an agent of the issuer (XYZ Corporation) and must register as such whether or not compensation has been paid. Conversely, if the transactions are with existing employees, directors, or partners of the issuer, and no compensation is paid for soliciting any person in the state, then the employee is not required to register
According to the Uniform Securities Act, which of the following actions accomplishes renewal of an agent's license? A. Participation in Continuing Education B. Passing an examination C. Paying a fee D. Making an announcement in a publication distributed in that state
C An agent renews his license by paying a fee designated by the Administrator. Passing an examination is generally only required for an agent's initial registration. (FINRA does impose a mandatory Continuing Education on all registered personnel, but this is not a state requirement.)
All of the following products are securities, EXCEPT a(n): Life insurance subaccount Variable universal life insurance policy Universal life insurance policy with a substantial cash value Annuity contract with several subaccounts
C. A universal life insurance policy is not a security. Unlike a life insurance subaccount, choice (a), or a variable universal life insurance policy, choice (b), universal life insurance policies are not considered securities. Universal life insurance policies accumulate a cash value, but the rate of return that the policy owner receives is fixed by the insurance company. By contrast, in a variable policy, the investor has a separate account and may choose investment options called subaccounts, and the return will vary according to the options the owner selects.
Which of the following securities offerings would use registration by coordination? A. An IPO that will be listed on the New York Stock Exchange B. An offering of preferred stock by an issuer whose stock currently trades on the Nasdaq Global Market C. An IPO that will be distributed in 12 states and not listed on any of the national exchanges D. An IPO that will be distributed to the residents of one state only
C. Choices (a) and (b) describe offerings of securities that are listed or authorized for listing on a national stock exchange. These are examples of federal covered securities that are generally exempt from state registration and notice filing. However, other issuers may be required to notice-file by the states. This means that they will need to file copies of the prospectus and other documents that they file with the SEC, with the states as well. Since choice (d) will be distributed only in one state, the issuer would probably use registration by qualification.
Under the Uniform Securities Act, which of the following issuers must file a registration statement with the state Administrator? I. Corporations with stock listed on the Toronto Stock Exchange II. Federal Savings and Loan Associations III. Federal credit unions IV. For-profit corporations A. I and IV only B. II and III only C. I, II, and III only D. IV only
D Choices (II) and (III) are exempt issuers and would not be required to file a registration statement. Nonexempt securities would be subject to this rule. Stock listed on most foreign exchanges must be registered, but there is an exemption for stock listed on the Toronto Stock Exchange, choice (I), and TSX Venture Exchange. Stock issued by for-profit companies would need to be registered.
Persons who violate federal insider trading regulations are subject to all of the following penalties, EXCEPT: A. Treble damages B. Prison terms C. Civil lawsuits by traders D. FINRA fines
D Insider traders face SEC civil penalties of up to three times the amount gained or loss avoided (treble damages). Criminal penalties for individuals can be as much as a $5,000,000 fine and 20 years in prison. In addition, private individuals who believe their investments were harmed by the actions of an insider trader may file a civil lawsuit to recover damages. However, FINRA fines may be assessed only against FINRA members and their associated persons. FINRA has jurisdiction only over members while anyone can be held civilly or criminally liable for insider trading. FINRA may not take action against someone who is not a FINRA member.
An agent has willfully violated a provision of the Uniform Securities Act. If the agent can prove she had no prior knowledge of the rule violated, which of the following choices is the maximum penalty? A. No maximum penalty B. $5,000 fine and three years in prison C. $10,000 fine and five years in prison D. $5,000 fine
D The maximum criminal penalty is a $5,000 fine and three years in prison. Under the Act, there can be no prison sentence imposed if the person can prove she had no prior knowledge of the rule.
Prior felony convictions must be disclosed on Form U4 if the conviction occurred: A. Within the last two years B. Within the last five years C. Within the last 10 years D. At any time
D This question is an example of a "hair splitter" that sometimes occurs on the real exam. The fine point of the question is whether you must disclose something versus whether or not that situation would affect your employment. Agents are required to disclose all felony charges or convictions on Form U4 regardless of when they occurred. There is no time frame. If an applicant had a felony conviction 20 years ago, it must be disclosed. On the other hand, an agent will be statutorily disqualified if the conviction was within the last 10 years. The agent may be registered if she requests and receives permission at a special hearing. The Administrator may reject the application of anyone convicted of a felony regardless of when it occurred if the Administrator shows it is in the public interest to do so. As a follow-up point, applicants must also disclose all securities-related misdemeanors, charges or convictions, regardless of when they occurred.
Zack Woods is employed at Indiana Trust Company, which is a federally chartered bank. His boss, the CFO of the company, asks him to help sell the bank's securities to some potential institutional clients and a few retail investors who do not have accounts with the bank. Under the USA, Zack would: A. Avoid meeting the definition of an agent if he sells the securities only to institutional investors B. Meet the definition of an agent if he sells the securities to any retail investors C. Meet the definition of an agent since he is selling the bank's securities to individuals who do not have an account with the bank D. Not meet the definition of an agent under any circumstances
D Under the Uniform Securities Act, agent means any individual (other than a broker-dealer) who represents a broker-dealer or issuer in effecting or attempting to effect purchases or sales of securities. Excluded from the definition is an individual who represents an issuer in effecting transactions in certain exempt securities or who represents an issuer in exempt transactions. Since Zack is representing an issuer and selling a certain type of exempt security (securities issued by a federally chartered bank), he would not meet the definition of agent under any circumstances (whether selling to institutional and/or retail investors).
An agent for Broker-Dealer A terminates employment and is hired by Broker-Dealer B in the same state. Who must notify the Administrator of these changes? I. The agent II. Broker-Dealer A III. Broker-Dealer B A. II only B. I and III only C. II and III only D. I, II, and III
D When an agent leaves one broker-dealer and joins another, the Administrator must be notified of these changes by all parties involved (the agent, the previous firm, and the new firm).
A bank president is selling his bank's debentures to banking clients. In this capacity, he is considered to be: A. A broker-dealer B. An agent of the issuer C. An agent of the broker-dealer D. Excluded from the definition of agent
D. **Those persons representing the issuer, who are involved in the direct marketing of certain exempt securities, are excluded from the definition of a securities agent. This includes persons representing the issuers of bank securities, commercial paper, municipal bonds, securities of other governmental bodies, and employee benefit plans** (A full, detailed list is included in your Study Manual and we recommend that you review that list before your exam). In this scenario, since the bank president is selling his own bank's securities, these securities are exempt. This is why he is not an agent of the issuer.
Under the Uniform Securities Act, which of the following choices is a broker-dealer in State B? A. An agent in State A who contacts a client in State B B. A corporation that sells commercial paper every other week in State B C. A broker-dealer registered in State A, where its only office is located, that has insurance companies only as clients in State B D. None of the above
DChoices (a) and (b) are excluded from the definition of broker-dealer. Neither agents nor issuers are ever defined as broker-dealers. A person conducting business exclusively with institutional buyers, choice (c), is also excluded from the definition of broker-dealer.
Exclusions from the definiiton of an IA:
LATE lawyers accountants teachers engineers B/Ds (unless adding a specific fee for IA) Publishers (if advice is *not tailored* to specific clients, i.e. publication is "general")
define: accredited investor (Reg D)
NW of at least $1M (excluding primary residence) Gross individual income >= 200k , if married, $300k *for the last 2 years, with expectation this continues
(Only Questions with Incorrect Answers Shown) An investment adviser is registered in State A and State B. A broker-dealer is registered only in State A. The client of the investment adviser is a resident of State B. The investment adviser asks the broker-dealer to purchase a nonexempt security, which is registered in State B, for the advisory client. The broker-dealer: A. Should refuse the order because the broker-dealer is not registered in the state in which the client resides B. May accept the order as long as this practice does not occur with any regularity C. May accept the order only if the client places the order D. May accept the order if the broker-dealer has no place of business in State B
This question is very tricky. Here is the point you need to watch for. The business relationship is between the broker-dealer and the investment adviser, not the advisory client. In other words, the investment adviser is the broker-dealer's customer. The transaction is being requested by the investment adviser, who is considered an institution. As a reminder, the term broker-dealer EXCLUDES any person who (1) has no place of business in the state and (2) transacts business with or through a financial institution or institutional buyer, whether acting for itself or as a trustee.
define: sale
considered any contract or agreement to dispose of a security for value
criminal penalties
criminal penalties exist if a person *willfully* violates the USA. maximum penalty: 1) $5k fine 2) imprisonment for 3 years
define: offer
every attempt to dispose of, and every solicitation to buy, a security for value
disciplinary actions the Administrator cannot do
fine take to jail issue injunctions (like permanent barring/closing up forever -- only courts can do this, admins can request all 3 of these, but only courts can actually bring to pass)
final prospectus delivery requirements:
for a non-listed IPO - 90 days for a non-listed follow on offering - 40 days for an IPO on NYSE or NASDAQ - 25 days for an NYSE or NASDAQ follow on - No Req.
withdrawal definintion
individuals may choose to withdraw their status just because they want to close shop. 1) withdrawals become effective in 30 days after filing 2) admin can initiate proceedings for up to 1 year post withdrawal (if fishy stuff went down) if there are revocation or suspension proceedings active at the time of the withdrawal then this withdrawal becomes effective pending the approval of the administrator suspensions, revocations amd denials are a result of punitive reasons. Cancellations and withdrawals just happen be of death, discontinuation, missing, or mental incompetance.
are stock dividends offers to sell?
no, not unless something else is requested in return, i.e., I give you stock dividend and you commit capital at a later time.
are gifts an offer to sell?
no, regardless of whether value is assesible or not
registration by coordination
requirements: 1) registration statement filed 2) 3 copies of prospectus filed with SEC 3) [optional] admin may request articles of incorp, underwriting agreements, anything else -effective simultaneous to federal registration -registration statement must be on file for 10 days -fees must be paid
SEC rule 147
securities sold within the boundaries of 1 state are *exempt from federal registration* IF: 1) 80% of co assets located in state 2) 80% of gross revenues generated in state 3) 80% offering proceeds used in state 4) 100% of offering purchasers reside in state
define: notice filing
state's demand that certain issuers of federal covered securities satisfy state requirements: 1) consent to service process 2) pay filing fee 3) [possibly] file additional materials that already filed with SEC **required for B/Ds -Reg D, Rule 506 offerings -issues of investment companies (mutual funds) **required for IAs -if place of business is in state -if no place of biz BUT >5 non-institutional clients
Prohibitive actions that the administrator *may make*
suspend revoke bar registrant from association with a BD or IA cease and desist order (effective immediately, may be issued by an administrator if the person is, or is about to, engage in any act or practice that constitutes a violation of the USA)
registration by qualification
used when: federal registration is already effective, or when offer is in 1 state only (intrastate) 1) info about issuer; -significant subsidiary names -addressses -form of organizatoin -state/foreign jurisdiction of operations -competitive conditions 2) info on officers & directors -names -addresses -principal occupations for last 5 years -securities in posses for last 30 days to filing 3) info on persons who owns >=10% of any class of shares 4) for non-issuer distributions, name and address of the person on whose behalf the offering is to be made 5) description of the issue's capitalization and long-term debt 6) type & amount of securities to be offered -price -estimated selling fees -underwriting agreements 7) estimated cash proceeds to be received and the purpose to be used 8) copy of every prospectus -letter -advertisement -literature used in connection with offering -+legal opinion if a debt offering 9) BS & P&L for the last 3 years 10) anything else the admin wants *registration becomes effective *only when deemed by the administator*
registration by notification (filing)
used when: trade on a national exchange & previously registered w/ SEC 1) registration statement according to Securities Act of 1933 2) organized under laws of US, OR, if not -> appointed a duly authorized agent in the US for service of process 3) >=500 ppl hold SEC registered equity securities 4) Issue has: -TNW of $4M OR TNW = $2M + positive pre-tax income for 2/3 last years ->= 400k units of this class of securities registered under section 12 of '34 ACT are *held by the public* -outstanding warrants & options held by underwriters and executive directors do not exceed 10% or total shares to be outstanding after completion of offering 5) issuer been in biz for at least 36 months 6) if pursuant to '34 ACT, -must be >=4 market makers -for a period of 30 days -during the L3M 7) aggregate commissions or discounts received by underwriters may not > 10% of aggregate offering price 8) issuer or sub must not have failed to pay a dividend or defaulted on bond or LT lease since end of FY since filing 9) if equity security, offering price >= $5 per share must also contain: 10) statement of eligibility 11) issuers name, -address -form of organization -statement describing the offering -copy of the prospectus filed with SEC *docs filed at least 5 days in advance *fees paid
time limits for civil liabilities
whichever OCCURS FIRST! 1) 3 years after occurrence of the violation 2) 2 years from discovering the violation