State Registration of a Security

Question 1

Howey Test

Answer 1

Defines a security, which involves:

1) an investment of money
2) in a common enterprise
3) with expectation of profits
4) solely from the efforts of others

Question 2

Examples of Securities

Answer 2

1) stocks and bonds
2) options (even on a commodity)
3) variable contracts / separate account
4) keogh plan PARTICIPATION
5) limited partnerships
6) multi-level distributorships (pyramid schemes)
7) pre-organization certificates
8) whiskey warehouse receipts

Question 3

NOT Securities

Answer 3

1) Life insurance
2) Endowment POLICIES
3) Fixed annuities
4) IRAs and Keogh PLANS
5) The Four Cs
- Commodities (futures contracts)
- Collectibles
- Currencies
- Condominiums as a place of business or residence

Question 4

Registration of Securities by Filing (Notification)

Answer 4

For large issuers conducting follow-on state offerings (secondary offerings). Issuers must meet certain reqs:

• Reg statement previously filed under 33 Act
• In biz at least 36 mo preceding reg
• No default on preferred div or bond payments in last year
• Total underwriting commissions not >10%
• Offering price at least $5 per share

Becomes effective at same time as fed reg

**method rarely used today since most issuers that would qualify for its use actually issue Federal Covered Securities which are EXEMPT from state reg

Question 5

Registration by Coordination

Answer 5

For smaller issuers conducting an offering (IPO) on an INTERSTATE basis.

• Registration is coordinated with fed registration under the ‘33 Act (though it does not have to be filed at the same time)
• Copies of SEC docs must be filed w the Admin, including 3 copies of the latest prospectus
• Any amendments must be promptly forwarded
• Coordination requires more docs than Notification or Notice Filing

Becomes effective at same time as fed reg

Question 6

Registration by Qualification

Answer 6

For issuers conducting INTRASTATE offerings (one state only)
Reqs are determined by the individual state.
-No fed registration required
-May be used in any state, for any type of security
-Extensive disclosures required by Admin, with CORRECTING amendments sent for inaccuracies

Becomes effective when determined by Admin

Intrastate, 147 exemptions –> reg by qualification

Question 7

Admin may deny, suspend or revoke a registration (unless it is an exempt issuer) if it is in the public interest AND

Answer 7

• False or misleading info has been filed on any report or application
• Any officer of the issuer or underwriter has been convicted of a crime involving securities
• The issuer’s enterprise is illegal (ex. gambling)
• The proper fee has not been paid
• Terms of offering are unfair
• Spread earned by syndicate is unreasonable (>10%)
• If a judge has issued an injunction, admin must take action against registration