Session 2 Flashcards
National Conference of Commissioner on Uniform State Law (NCCUSL)
a national organization of lawyers devoted to unifying state laws, drafted the Uniform Securities Act (USA)
Uniform Securities Act (USA)
is a model legislation for the separate states to adopt… (just an outline)
Administrator
refers to the office or agency that has the complete responsibility for administering the securities laws of the state
Administrator’s power
1- over the registration of securities professional and securities
2- to make rules and issue orders
3- Can deny, suspend or revoke registration
Cease and Desist Order
when a registered person has or is about to commit a violation to the USA…(Can be served before hearing)
Stop Order
is used to deny effectiveness to, or suspend or revoke the effectiveness of any registration statement(only securities)
Summary Order 3 cases
1- postponing/ suspending (security) the registration of any security proceeding a final determination of a proceed problem
3-Denying/revoking a specific security exemption
What is the protocol that the administrator must follow for a summary order?
1- inform all interest parties
2- reason for the order
3- within 15 days after the written request a hearing will be granted
Final Orders
is one that ends litigation
What three items must be placed on a Final Order?
1- appropriate prior notice to the interested parties
2- opportunity for hearing
3- written finding or facts and conclusions of law
Blue Sky Laws are also known as
State Securities Laws
Broker-Dealer
means any person engaged in the business of effecting transactions in securities for the account of others or own
Who do BD register with?
State and SEC
Agent
any individual who represents a BD or issuer in effecting or attempting to effect purchases or sales of securities
Investment Adviser (2)
1- paid to engage in the business of advising others (directly/publications) as to value of securities and what to do
2- paid to issue analyses or reports concerning securities
Who do investment advisors register with?
EITHER the SEC or State registered adviser
Investment Adviser Representative
any individual who represents a state-registered or federal covered investment adviser that give or solicit advisory services
Issuer
any person who proposes or has issued any securities
Who aren’t included to be issuers?
certificate of interest or participation in oil, pass or mining titles or leases
Nonissuer
indirect seller of a security that isn’t the issuer
Guaranteed
means that payment of principal, interest or dividends BUT NOT CAPITAL GAINS
Registrant
refers to those securities pros/issuers who are in the process or have registered with the Administrator
National Securities Market Improvements Act of 1996 (NSMIA)
was created to promote efficiency in capital formation in the financial markets….these are federal covered securities
What four persons are subjective to state registration?
1- BD
2- Agents
3- Investment Advisers
4- Investment adviser representatives
How much $ does a employee benefit plan have to have in order to be considered a institution?
At least a million
Persons not included in the definition of a BD? (3)
1- agents
2- issuers
3- banks, savings institutions and trust companies
State exclusion of BDs include the two following examples:
1- have no place of business in the state and deal exclusively with the issuers of the security involved in the transactions w/ other BD and institutions
2- have no business in the state, but are licensed in their state that offer/sell securities to customer in the state only who are clients but not residents
How long does the BD have to register will a state that a new client moved to before BD can’t deal with them?
30 day period…new drivers/voter registration equals a move
BD registration with state and internet advertising? (2)
1- firm/person can only do business if registered in the state
2- Any follow up individual response dealing with effecting transactions will have the firm/person make sure they are registered w/ state
3- Website makes general statements
Net Capital Requirements
is established by the administrator and state requirement level can’t be higher than federal
BD must disclose their capacity no later than…
trade confirmation or settlement date
What type of employees for a BD do not have to be registered?
Clerical and administrative (ministerial)
If a cold call intern received a 10 dollar bonus for every solicited client would they be considered an agent?
Yes
DO agents have to register with the state?
Yes
U4
is an agents registration form
Do agents have to be registered in a state for an unsolicited order if the clients lives in an outside state?
YES they can’t accept the order
If an agent is to move from Merrill to JP Morgan who must reach out to the administrator?
All three parties must
Can an individual be an agent for two BD or issuers?
yes if…
1- BDs or issuers are affiliated by direct or indirect common control
2- administrator gives the okay
What must be on the application to the administer?
1- form and place of business
2- proposed method of doing business
3-a list of jurisdictions in which the applicant is registering
4- qualification and business history
5- adjudications by the SEC or any SROs
6- convictions of misdemeanors with securities
7- conviction of felony related or not
8- (for bd/ investment adviser only)financial conditions
9-any liens or bankruptcy for 10 years
NO FINGER PRINTS**
Consent to Service Process
appoints the Administrator as the applicant’s attorney to receive and process non criminal securities related complaints against the applicant
If a securities professional is registered in 6 states how many administrators must be notify with the consent to service process?
All six
What is the renewal process date for all registered persons?
December 31st…ALWAYS
If an application is withdrawn or denied does the individual get back the filling fee?
Yes BUT NOT ALL OFF IT
Application of license of the BD, agent, investment adviser becomes effective?
30 days after later of the complete app or date of the amendment AT NOON
How long does it take for bd, individual to withdraw their registration?
30 days, but can be faster with a rush order
Actions that fall outside of recommendations for BD?
basically anything to do with general research even if it has a buy/sell recommendation if okay for a website that the agent creates
Actions that fall outside of recommendations for BD?
anything that is customer specific (could be group) or urges the customers to purchase securities
Social Media classifications such as twitter and linkedin?
Twitter is retail comm (doesn’t need preapproval)
LinkedIn needs preapproval
BD policies about social media should include: (4)
1- be writing and communicated firmwide
2- be written short and to the point
3- define the responsibilities of all concerned parties
4- describe the monitoring tools
How often is a BD require to hold a meeting about social media conduct?
Annually
Nonsecurities Investments (6)
1- collectibles 2- fixed annuities 3- currencies 4- real estate 5- precious metals 6-grain
Common Enterprise
is when the fortune of the investor are interwoven with those either the person offering the investment or other investors
Issuer Transaction
is when all the money goes straight to the issuer
Nonissuer Transaction
is one where the sale doesn’t go to the issuer, directly or indirectly
Are Mutual fund transactions issuer or nonissuer?
ISSUER
Categories of Federal Covered Securities (4)
1- securities issued by open or closed end investment companies
2- securities listed on any NY/Chi exchange and NASDAQ stock
3- securities in pursuit of being in Reg D (506 b/c)
4- out of state muni bonds(NY resident buys ohio muni)
Methods of State Registrations of Securities (3)
1- Notice Filing
2- Coordination
3- Qualification
Notice Filing
typically have lowest fees and is a way for the state to collect revenue
Docs State Administrators could act for? (4)
1- Docs filed with their registration statements filed with the SEC
2- Docs filed as amendments to the initial federal registration statement
3- a report as to the value of such securities offered in the state
4- Consent to service of process
Is the state administrator powerless to federal covered securities?
No if there is an appearance of fraud they can prevent the sale from occurring
Registration by Coordination
is the most popular for nonfederal cover securities…if a registration statement has been filed under the Securities Act of 1933 in connection with the same offering
In order to coordinate a federal with a state registration the following must be provided: (4)
1- (Optional) copies of the latest prospectus if state administrator asks for it
2-Copy of articles of incorporation and bylaws, underwriting agreement or a specimen copy of the security
3- (optional) copies of any other info filed by the issuer under the Security Act of 1933
4- each amendment to the federal prospectus promptly after it is filed w/ SEC
Effective date will be the same for federal and state provided that: (3)
1-no issue with the state administrator
2- Has been on file between 10 to 20 days
3- Statement for price range as well as underwriting discounts have been on file for 2 business days
Is it possible to increase the amount of shares being offered to the public without resubmitting the paperwork? How? (2)
Yes
1- the offering price stays the same
2- the commissions and discount price stays the same
Exempt Transaction
is exempt from the regulatory control of the state Administrator
It is unlawfully for any person to offer/sell any security in this state unless:
1-it is registered under the act
2- security or transaction is exempted under the act
3-it is federal covered security
Exempt Securities Include
1-Insurance Companies 2- Public Utility Securities 3-Federal Covered Securities 4-Certain Money market 5-Securities issued by cooperatives 6-Securities issued by nonprofit
What is a promissory note exempted?
when it is valued at more than 50,000 and has one of the highest ratings
What are exempted from the USA, but not exempted from the federal registration?
1-foreign gov’t
2-insurance companies
3-federal covered securities
What type of bank’s securities are exempted from both state and federal?
Regulated banks
Isolated Nonissuer Transaction
is an exempted transaction where it doesn’t involve securities professionals and is a sell between two parties
Unsolicited Brokerage Transactions
is an exempted transaction that is the most popular where a clients calls FA to buy/sell security
Underwriter Transactions
is an exempted transaction is between issuer and BD performing in the capacity of the underwriter plus underwriters themselves
Bankruptcy, guardian or conservator transactions
is an exempted transaction transactions by an executor, administrator, sheriff, marshal, receiver, guardian or trustee in bankruptcy are exempt
Intuitional Investors Transactions
is an exempted transaction primarily transactions with financial institutions such as banks, insurance companies and investment companies and there is no min order size used to define these trades
Limited Offering Transactions
is an exempted transaction that is private placement directed at no more that 10 offerees people other than institutional investors during the previous 12 months
For private placement non intuitional investors must sign:
a Investment letter attesting to the fact that they are purchasing the security for investment purposes (Sellers job)
Preorganization Certificates is exempted( postponed) if:
1- no commission is paid or given directly or indirectly for soliciting any subscribers
2-the number of subscribers doesn’t exceed 10
3-no payments is made by any subscriber
Transactions with Existing Security Holders
is exempted transactions as long as no commissions are paid directly or indirectly
Nonissuer Transaction by pledgees
if I pledge stock as collateral for a loan and I got bankrupted the company will sell my stock to recoup some loses and this is exempted transaction
Administrator may deny or revoke registration exemption for:
1- any security by an person organized and operated not for private profit but exclusively for religion, ed, charitable, fraternal
2-an investment contracted issued in connection with employee stock purchase, savings, pension….
Registrant
is the person registering the securities
State Administrators require every issuer to supply the following info on their registration statement: (6)
1- amount of securities to be issued in the state
2- States in which the security is to be offered, but not the amounts offered in those other states
3- any adverse order or judgment concerning the offering by regulatory authorizes
4- Anticipated effective date
5- Anticipated use of funds
6- any docs filed with the Administrators within 5 years that is current
Other than an issuer who else must file a registration statement?
1- Selling Stockholder
2- BD
Filing Fee
is paid by the issuer when filing the registration…usually percentage of total offering price
Ongoing Reports
the Administrator may require the person who filed the registration to give QUARTERLY reports to keep info current and to inform the Administrator of the progress of the offering
The Administrator may require the securities to be placed in escrow if the security is issued:
1-within the past three years
2- to a promoter at a price that’s much different than the offering price
3- to any person for a consideration other than cash
Special Subscription Form
that the registration only be sold on a form specified by the administrator and that a copy of the form/subscription be filed with the Administrator or preserved for three years
Withdrawal of Registration Statement
can only be done after 1 year after the effective date and if any securities are left outstanding need the Administrator approval
What is the difference between fraudulent and unethical practice?
Fraudulent- punishment is jail
Unethical Practice- is a fine
State securities law have fraud defined to for any person, when engaged in the offer sale, or purchase of any security directly/indirectly:
1- employ any device, scheme or artice to defraud
2- make any untrue statement of a material fact or omit
3- engage in any act, practice or course of business that operates as fraud or deceit on a person
It is unlawful for any person who receives any consideration from another person for advising the value of a securities or their purchase/sale to:
1- employ any device, scheme or artifice to defraud the other person
2-engage in any practice or course of business which does or would operate in fraud or deceit upon
Material
is info used by a prospective purchaser to make an informed investment decisions
Examples of untrue/misleading statements:
1- inaccurate market quotations
2-misstatement of an issuer’s earning or projected earnings or dividends
3- inaccurate statement regarding the amount of commissions, markup or markdown
4- Imply you have inside info about a company
5- telling a customer that a securities will be listed on an exchange before its known
6- Informing the security is approved
7-promising a service without being qualified to perform them
8-saying the state Administrator approves the BD
9-misrepresenting the status of customer account
Delivery Delays
engaging in a pattern of unreasonable and unjustifiable delays in the delivery of securities purchased by customer and/or payment upon request of free credit balance
Free Lunch Seminars
attendees are giving free lunch and are giving an educational piece about products NO SELLING at events
Margin Docs
executing any transactions in a margin acct w/o securing from the customers a properly executed written margin agreements after the initial transaction in the account
Improper Hypothecation
hypothecation without have the customer’s WRITTEN permission
Unreasonable Commissions/markups
completing a transaction not at the market price that in the market
Timely Prospectus Delivery
failing to furnish that a customer purchased in an offering…must be given on confirmation date
Unreasonable Serving Fees
charging for unreasonable and inequitable fees for service performed
Disclosure of Fees made easier for customers:
1- Fees are typically disclosed when a customer account is open. If fee schedule changes notify clients
2- Minimize the fine print or make the fees clear
3- Use standardized and uncomplicated terms to describe service and maintenance fees to help clients
Typical BD Fees
1-issuance of stock certificate 2- transferring an account 3- wiring funds 4- margin account interest 5-account maintenance fees 6- safekeeping of funds/securities 7-postage and handling
Dishonoring Quotes
cannot state price to customer without the intent for the BD to sell or purchase atleast 100 shares at the price
Market Manipulation
effecting any transaction in any security by means of manipulative, deceptive or fraudulent device
Matched Orders
occur when an order to buy or sell securities is entered with knowledge that a matching order on the oppo side of the transaction has been entered…this does two things (1) creates an appearance of false trading
Wash Trade
is an order to buy/sell securities resulting in no change of beneficial ownership for the purpose of create false activity
Guaranteeing Against Loss
telling the clients that the FA will make up the difference if a clients loses money
Deceptive Advertising Practice
using any advertising or sales presentation in such a fashion as to be deceptive or misleading
Can a underwriter/selling group withhold shares of a public offering?
NO
Responding to Complaints
failure or refusal to furnish a customer, upon reasonable request information to which he is entitled or respond to a formal written request or complaint (must be answered if written)
Backdating Records
all records and documents must reflect their actual dates
Selling Away
effecting securities transactions not recorded on the regular books or records of the BD which the agents represents, unless the transactions are authorized in writing by the BD proper to execution
Fictitious Accounts
establishing or maintaining an account containing fictitious info in order to execute transactions which would otherwise be prohibited
Sale or Sell
is any transfer of a security which money or some other valuable consideration is involved
Offer or Offer to Sell
every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security for value
Examples of Offer or offer to sell (3)
1-any security given or delivered with like a bonus
2-a purported gift of assessable stock is considered to involve an offer and a sale
3-a sale or order of a warrant or right to purchase or subscribe to another security
Assessable Stock
when gifted the administrator has jurisdiction over the transaction because theres a potential future obligation of a demand for par value
Examples of exclusions from the definition of Sale/Sell and offer/offer to sell:
1- bona fide pledge (pledge stock as collateral for loan)
2- gift of nonassessable stock
3- stock dividend whether given by issuer or not
4- after a class vote by the stockholder for merger, consolidation reclassification
5- award in lawsuit for the company to gift shares
USA describes legal jurisdiction as
as any offer to buy or sell an security as wells as any acceptance of the offer if the offer:
1-orginated in the administrator’s state
2-directed to the administrator’s state
3-accepted in the administrator’s state
USA states that an offer(publishing and broadcast) wouldn’t not be under control of the Administrator if:
1- a TV or radio broadcast that originated outside of the state
2- a bona fide newspaper or periodical published outside of the state
3- a newspaper or periodical published inside the state by more than 2/3 of it circulation outside of the state last year
Difference between a rule and an order
Rule applies to everyone and an order is a specific instance
How many days does a person have to challenge the Administrator’s order?
Within 60 days
Can a Sate Administrator alter laws?
No they may not
Are rules and orders added to the USA model?
No they aren’t
Administrator has the power to do the following in conducting an investigation: (4)
1- require statements in writing as to all matters relating to the issue under investigation
2- publish and make public the facts and circumstances concerning the issuer to be investigated
3- subpoena witness and compel their attendance and testimony
4-take evidence and require the production of books, papers and all other relevant documents
Contumacy
is refusal of the person to respond to a subpoena of an Administrator…the Administrator will go to the appropriate court in the state
Administrator may issue a cease and desist order at the discretion if: (2)
1- with or without a prior hearing against person(s) engaged in the prohibited activity
2- bring action in the appropriate court to obtain enforcement of the order through the issuance of a temporary or permanent injunction
Administrator will summarize a suspension the following points: (3)
1- give prior notice to the affected persons
2- granting an oppo for a hearing
3- provide findings of facts and conclusion of laws
If a person was convicted of a misdemeanor in State A moves to State B where the action was a felony and then the person applies for registration what will happen?
The action that took place in State A will have to be viewed as a misdemeanor in State B
No order to deny, suspend or revoke may be entered without: (3)
1- appropriate prior notice to the applicant or registrant
2- Oppo for hearing
3- written findings of fact and conclusion of law
Administrator acting summarily means:
that he may order, w/o having to go through the hearing process, a postponement or suspension of a registration pending final determination
If an applicant receives a suspension or postponement from the Administrator how long do they have to respond for a hearing?
Within 15 days
How long does the applicant have to withdraw from the Administrator?
30 days after the Administrator receives it
If the registration is withdrawn does the Administrator have jurisdiction over you?
yes for a year period
