NASAA Series 63 — All Questions

A broker-dealer registered in this state wants to sell the securities of an out-of-state issuer to local customers. The issuer has not registered the offering here and will not cooperate. May the broker-dealer file the registration statement itself?

• a.Yes, but only for a registration by qualification, since coordination and notification filings need the issuer's own signature.
• b.Yes, because a registered broker-dealer may file, as may the issuer or another person on whose behalf the offering is made.✓
• c.No, because a broker-dealer may file only when it is also the underwriter for the issuer's federally registered offering.
• d.No, because only the issuer of the security has authority to file a registration statement for its own securities in any state.

Section 305(a) lets a registration statement be filed by the issuer, any other person on whose behalf the offering is to be made, or a registered broker-dealer. That allows a local firm to register a security even when the issuer declines to do so. Nothing in the section limits the broker-dealer to one registration method.Uniform Securities Act §305(a)

A registration statement for a continuous offering became effective on March 1. By the following March 1 the issuer is still selling the securities in non-exempt transactions. What is the status of the registration?

• a.It lapses on the first anniversary and must be replaced with a new filing before any more sales to investors in this state.
• b.It stays effective for exactly two years from the effective date, after which a renewal and fee are due regardless of sales.
• c.It stays effective only if the issuer files a renewal application with the Administrator on or before the first anniversary.
• d.It stays effective for as long as the issuer keeps offering or distributing the securities in non-exempted transactions.✓

Under Section 305(i), a registration is effective for one year or any longer period during which the security is still being offered or distributed in a non-exempted transaction by or for the issuer or an underwriter or dealer holding an unsold allotment. The continuing offering here extends the registration. A stop order, not the calendar, is what suspends effectiveness.Uniform Securities Act §305(i)

Six months after its registration became effective, an issuer asks to withdraw the registration. Shares of the same class are still held by investors. What does the Act provide?

• a.The registration may be withdrawn after 30 days from the effective date if the issuer pays a withdrawal fee.
• b.The registration cannot be withdrawn for one year from its effective date while securities of that class are outstanding.✓
• c.The issuer may withdraw once the Administrator holds a hearing, because withdrawal always requires a hearing and findings.
• d.The issuer may withdraw at any time by written request, because registration is a voluntary filing the issuer controls.

Section 305(i) bars withdrawal of a registration statement for one year from its effective date if any securities of the same class are outstanding. After that, withdrawal is possible only in the Administrator's discretion. The 30-day withdrawal period for agents and broker-dealers in Section 204(e) is a different rule.Uniform Securities Act §305(i)

The Administrator reviews a coordination filing for a start-up whose promoters received shares last year for a nominal sum. Which conditions may the Administrator require of this registration by rule or order?

• a.Escrow of all shares for ten years, with proceeds paid to the issuer as each sale is made so that working capital is not delayed.
• b.Escrow of low-priced shares issued to promoters within three years, and impounding proceeds until a set amount is raised.✓
• c.A bond of $50,000 from the issuer, with every sale reported to the Administrator within five days of its execution.
• d.Impounding of proceeds only, because the Act gives the Administrator no authority to require that promoter shares be held in escrow.

Section 305(g) lets the Administrator require, as a condition of registration by qualification or coordination, that securities issued within the past three years to promoters for substantially different consideration be escrowed, and that sale proceeds be impounded until the issuer receives a specified amount. A fixed ten-year escrow and a dollar bond appear nowhere in that subsection.Uniform Securities Act §305(g)

An issuer's registration is effective, and the Administrator wants to keep its information current. What is the most frequent reporting the Administrator may require of the registrant by rule or order?

• a.Reports no more often than quarterly while the registration statement is effective, to keep it current.✓
• b.No reports at all, because after effectiveness the registrant has no duty to update the filing with the Administrator.
• c.Reports once a year only, due on the anniversary of the date the registration statement became effective.
• d.Reports as often as monthly, because the Administrator needs current information to monitor the progress of the offering.

Section 305(j) allows the Administrator to require reports, not more often than quarterly, to keep the registration current and to show how the offering is progressing. This applies so long as the registration statement is effective. A monthly requirement would exceed that limit.Uniform Securities Act §305(j)

The Administrator learns on the day a registration statement becomes effective that a financial figure in it was materially false. Forty-five days later the Administrator tries to start a stop order proceeding based on that figure. Is the proceeding timely?

• a.No, because a proceeding must begin within fifteen days of the effective date, which is the Administrator's hearing deadline.
• b.Yes, because a stop order may be sought at any time while the registration statement remains in effect.
• c.No, because a proceeding based on a fact known when the registration became effective must be started within thirty days.✓
• d.Yes, because the Administrator has sixty days from the effective date to begin a proceeding over a misstatement.

Section 306(a) says the Administrator may not begin a stop order proceeding against an effective registration on the basis of a fact or transaction known when it became effective unless the proceeding starts within the next thirty days. Forty-five days is too late. The fifteen-day figure in the Act concerns scheduling a hearing after a summary order, not the time to begin.Uniform Securities Act §306(a)

A court enjoined the sale of a registered security under another state's law fourteen months ago. May the Administrator now start a proceeding against the effective registration on the ground of that injunction?

• a.No, because an injunction from a court outside this state may never serve as the basis for any stop order here.
• b.Yes, because an injunction from another state's court is a permanent ground for a stop order against any registration.
• c.Yes, because the one-year limit runs from the effective date of the registration and not from the date of the injunction.
• d.No, because a proceeding on the basis of an order or injunction elsewhere cannot start more than one year after that order or injunction.✓

Section 306(a)(2)(C) makes the security's being the subject of a stop order or injunction under another act a stop order ground, but the Administrator may not begin a proceeding against an effective registration on that ground more than one year after the order or injunction. At fourteen months the time has passed. The one-year clock is tied to the injunction, not to the registration.Uniform Securities Act §306(a)(2)(C)

The Administrator summarily postpones the effectiveness of a registration statement and notifies the issuer. The issuer sends a written request for a hearing. Within what time must the matter be set down for hearing?

• a.Within thirty days after the Administrator issued the summary order.
• b.Within five business days after the Administrator receives the request.
• c.Within sixty days after the issuer sends the written request.
• d.Within fifteen days after the Administrator receives the written request.✓

A summary postponement or suspension under Section 306(b) must be accompanied by notice of the reasons and of the right to a hearing, which is to be set within fifteen days after the written request is received. If no hearing is requested or ordered, the order stays in effect until modified or vacated. Other stop orders need prior notice, a hearing and written findings.Uniform Securities Act §306(b)

An offering's underwriters and promoters stand to receive unusually large discounts, commissions and options compared with the proceeds going to the issuer. Does this give the Administrator a basis to deny or stop the registration?

• a.No, because compensation in a registered offering is a matter of contract between the issuer and its underwriters.
• b.Yes, but only if the compensation exceeds 10% of the offering, since that figure is the fixed limit in the Act.
• c.No, because the Administrator may review the accuracy of disclosure but has no authority over the fairness of the offering's terms.
• d.Yes, if the order is in the public interest, because unreasonable underwriter, seller or promoter compensation is a stop order ground.✓

Section 306(a)(2)(F) lets the Administrator, when it is in the public interest, issue a stop order if the offering is made with unreasonable amounts of underwriters' and sellers' discounts, commissions or other compensation, or promoters' profits or options. There is no fixed percentage ceiling in that clause; the ten percent figure belongs to the notification test.Uniform Securities Act §306(a)(2)

An issuer sells securities in a Rule 506 private offering that qualify as federal covered securities. Its first sale in this state occurs on March 3. By when may the Administrator require the Form D notice filing?

• a.No later than 15 days after the first sale in this state, together with a consent to service of process.✓
• b.Never, because Rule 506 offerings are federal covered securities and federal law bars a state from requiring any notice filing, consent or fee.
• c.Before the first offer in this state, because notice filings for covered securities must precede any sales activity.
• d.No later than 60 days after the first sale in this state, and only if the buyer was not accredited.

For securities that are covered under the federal Rule 506 provisions, Section 307(b) allows the Administrator to require a Form D notice and a consent to service of process no later than 15 days after the first sale in the state. The state cannot require registration, but it can require this notice and a fee, so the claim that covered status removes every state filing requirement is wrong. The deadline runs from the first sale, not from the first offer, so a pre-offer filing is not required. A 60-day deadline and an audited balance sheet are not part of the notice requirement.Uniform Securities Act §307(b)

An issuer sells a Rule 506 offering that is a federal covered security, but it never made the Form D notice filing this state requires. The securities cannot be registered here. What action may the Administrator take?

• a.Issue a stop order suspending offers and sales of the covered security if the order serves the public interest.✓
• b.Require the issuer to register the securities by qualification before another sale takes place in the state.
• c.Nothing, because states have no authority over federal covered securities once the SEC has preempted state registration.
• d.Revoke the registration of the securities, because every covered security is registered with the state upon notice filing.

Federal law preempts state registration of covered securities, but Section 307(d) still lets the Administrator issue a stop order suspending offers and sales of a covered security, other than an exchange-listed one, if it finds the order in the public interest and a condition under that section was not met. The remedy is a stop order, not registration or revocation.Uniform Securities Act §307(d)

An agent tells a client that a municipal bond issued by another state's housing authority is safe because the issuer's earnings have never declined. The agent knows that the issuer has missed two interest payments. The bond is an exempt security. Is the agent liable under the Act?

• a.Yes, because exempt securities remain subject to the antifraud provisions on untrue statements and misleading omissions of fact.✓
• b.Yes, but only if the client suffers a loss and sues for rescission, since the Administrator has no power to act before then.
• c.No, because a statement about a government issuer is an opinion about its credit, and opinions cannot be fraud under the Act.
• d.No, because a security exempt from registration is also exempt from every other provision of the Act, including those on fraud.

The exemption in Section 402(a)(1) frees government securities from registration, but the antifraud provisions of Section 101 apply to every offer, sale or purchase of any security, exempt or not. Omitting the missed payments makes the statement misleading. The Administrator can act without waiting for a customer loss.Uniform Securities Act (1956) §101 (antifraud, no exemptions); §402(a)(1) (government-security exemption from registration)

Company R issues a promissory note payable in cash in 6 months. The note is sold in denominations of $25,000 and receives the highest rating from a nationally recognized rating organization. Is the note exempt from registration as commercial paper?

• a.No, because the exemption requires denominations of at least $50,000, even though the maturity and rating requirements are met.✓
• b.Yes, because a rated note maturing within 9 months is exempt regardless of the denominations in which it is sold.
• c.Yes, because any note with the top rating is exempt from registration provided that the issuer is a corporation.
• d.No, because the exemption applies only to notes with maturities of 90 days or less, and a 6-month note exceeds that limit.

Section 402(a)(10) exempts a note, draft, bill of exchange or bankers' acceptance that is payable within nine months, issued in denominations of at least $50,000, and rated in one of the three highest categories. The 6-month term and the rating qualify, but denominations of $25,000 do not. The 90-day figure is not part of this exemption.Uniform Securities Act §402(a)(10)

An agent offers a contract from an insurance company under which the payments vary with the performance of a separate account invested in stocks, and the insurer promises no fixed sum. The agent holds only an insurance license. Is a securities registration needed?

• a.No, because the insurer's state regulation of its products takes the contract outside the registration provisions.
• b.Yes, because a contract whose benefits vary with investment results is a security, unlike a fixed-sum annuity.✓
• c.No, because every contract issued by a licensed insurance company is excluded from the definition of a security.
• d.Yes, but only if the contract is sold to more than ten buyers in a single period of twelve consecutive months.

Section 401(m) excludes from the definition of a security an insurance or endowment policy or annuity contract under which the insurer promises to pay a fixed sum of money. A contract whose payments depend on the results of a separate account makes no such promise, so it is a security and the seller needs securities registration. The ten-buyer limit belongs to a transaction exemption, not to the definition.Uniform Securities Act §401(m)

A church organized exclusively for religious purposes and not for private profit offers bonds to its members to fund a new building. A broker-dealer agent is asked whether the bonds must be registered. What is the correct answer?

• a.The bonds are exempt from registration and from every other provision of the Act, so the antifraud rules do not apply either.
• b.The bonds must be registered because churches are treated like commercial issuers when they offer debt to members of the public.
• c.The bonds are exempt only if the church files a notice with the Administrator thirty days before the first sale to a member.
• d.The bonds are exempt because the church is organized exclusively for religious purposes, but antifraud rules still apply.✓

Section 402(a)(9) exempts securities issued by a person organized and operated not for private profit but exclusively for religious, educational, benevolent, charitable, fraternal, social, athletic or reformatory purposes. The exemption relates to registration, and the Administrator may deny or revoke it for a specific security. The thirty-day notice requirement belongs to employee benefit plans.Uniform Securities Act §402(a)(9)

A company adopts a stock purchase plan for its employees and wants the plan's investment contracts to be exempt. When must the Administrator be notified in writing?

• a.No notice is needed, because such plans are exempt.
• b.In writing, thirty days before the inception of the plan.✓
• c.Within ten days after the first employee enrolls in the plan.
• d.Fifteen days before the first purchase under the plan is made.

Section 402(a)(11) exempts an investment contract issued in connection with an employees' stock purchase, savings, pension, profit-sharing or similar benefit plan if the Administrator is notified in writing thirty days before the inception of the plan. Without that notice the exemption is not available. The fifteen-day figures elsewhere in the Act relate to hearings and Form D filings.Uniform Securities Act §402(a)(11)

A broker-dealer agent offers bonds issued by a foreign national government. Which fact determines whether the bonds are exempt as a foreign government security?

• a.The bonds are guaranteed by a commercial bank organized under the laws of the United States or of any state.
• b.The United States maintains diplomatic relations with that government and it recognizes the bonds as a valid obligation.✓
• c.The bonds are denominated in United States dollars and are sold only to institutional investors in this state.
• d.The government has an investment-grade rating from a nationally recognized rating organization at the time of the sale.

Section 402(a)(2) exempts securities issued or guaranteed by Canada or a Canadian province, or by any other foreign government with which the United States currently maintains diplomatic relations, if the security is recognized as a valid obligation by the issuer or guarantor. Currency, credit rating and the buyer's identity do not decide the exemption, and a bank guarantee is not a condition.Uniform Securities Act §402(a)(2)

An investor privately sells 300 shares of a company's unregistered stock to a friend in a one-time sale. The investor is not an issuer and is not a dealer. Must the shares be registered for this sale?

• a.No, because an isolated non-issuer transaction is exempt, whether or not it is effected through a broker-dealer.✓
• b.Yes, because every sale of an unregistered security to an individual buyer in this state must be registered by the seller.
• c.Yes, because the exemption for isolated transactions applies only when a registered broker-dealer makes the sale.
• d.No, because a sale to a friend is always exempt, however many such sales the investor makes in a year.

Section 402(b)(1) exempts any isolated non-issuer transaction, whether or not a broker-dealer is involved. The exemption is lost when sales become repeated or the seller is the issuer. A seller who makes many such sales cannot rely on it for each one, so the friend's relationship is irrelevant.Uniform Securities Act §402(b)(1)

A customer phones a broker-dealer and, without any recommendation, asks to buy 100 shares of an unregistered company from another investor. The broker-dealer executes the order as agent. How is the transaction treated?

• a.It is an exempt non-issuer transaction, because a registered broker-dealer executed it on the customer's unsolicited order.✓
• b.It is not exempt, because every purchase of an unregistered security through a broker-dealer requires registration of the security.
• c.It is exempt only if the order is placed in writing at least five business days before the broker-dealer executes it.
• d.It is exempt only if the security is also listed on a national securities exchange at the time of the order.

Section 402(b)(3) exempts a non-issuer transaction effected by or through a registered broker-dealer pursuant to an unsolicited order or offer to buy. The Administrator may require the customer to acknowledge on a specified form that the order was unsolicited. The exemption would be lost if the agent had recommended the purchase.Uniform Securities Act §402(b)(3)

An issuer sells unregistered notes directly to a bank, an insurance company and a registered broker-dealer, using no public solicitation. Is the transaction exempt from registration in this state?

• a.No, because the notes must be registered whenever more than two buyers purchase from the same issuer.
• b.Yes, but only if each purchaser buys for its own account and does not hold the notes in a fiduciary capacity.
• c.Yes, because an offer or sale to a financial institution or institutional buyer, or to a broker-dealer, is exempt.✓
• d.No, because the exemption for institutional buyers applies only if the sale is made through a registered agent.

Section 402(b)(8) exempts an offer or sale to a bank, savings institution, trust company, insurance company, investment company, pension or profit-sharing trust, other financial institution or institutional buyer, or to a broker-dealer, whether the purchaser acts for itself or in a fiduciary capacity. The number of institutions does not matter, and neither does the form of the sale.Uniform Securities Act §402(b)(8)

An issuer offers its unregistered securities to eight individuals in this state over a six-month period. The issuer reasonably believes each buyer is purchasing for investment, but it pays a finder a commission for locating two of them. Does the limited-offering exemption apply?

• a.Yes, because the offer is directed to no more than ten persons in a twelve-month period and the buyers are investors.
• b.No, because the exemption requires that no commission or other remuneration be paid for soliciting any prospective buyer in this state.✓
• c.No, because the exemption allows no more than five individual buyers in any period of twelve consecutive months.
• d.Yes, because a finder's commission is permitted when the finder is paid only for the two buyers the finder personally located.

Section 402(b)(9) exempts an offer directed to not more than ten persons in the state in twelve consecutive months, if the seller reasonably believes the buyers are purchasing for investment and no commission or other remuneration is paid for soliciting any prospective buyer. The finder's commission defeats the exemption even though the count is within the limit.Uniform Securities Act §402(b)(9)

Promoters plan to sell preorganization certificates to subscribers for a corporation not yet formed. No commission will be paid for soliciting. How many subscribers may there be, and what payment may be taken, to fit the exemption?

• a.No more than ten subscribers, and no subscriber may make a payment before the corporation is formed.✓
• b.No more than ten subscribers, and each subscriber must pay the full price before the corporation is formed.
• c.Any number of subscribers, provided that no commission is paid and no subscriber pays more than $5,000.
• d.No more than twenty-five subscribers, and each subscriber may pay up to ten percent of the price.

Section 402(b)(10) exempts an offer or sale of a preorganization certificate or subscription if no commission or other remuneration is paid for soliciting a prospective subscriber, the number of subscribers does not exceed ten, and no payment is made by any subscriber. A deposit or full payment would defeat the exemption.Uniform Securities Act §402(b)(10)

An issuer offers new shares only to its existing shareholders and pays a commission to a broker-dealer for soliciting them. It files a notice with the Administrator stating the terms, and the Administrator does not disallow the exemption. After how long may the issuer rely on the exemption?

• a.Only after the Administrator affirmatively approves the offering in a written order.
• b.Once thirty days pass without an order from the Administrator disallowing the exemption.
• c.Once five full business days pass without an order from the Administrator disallowing the exemption.✓
• d.Once ten calendar days pass after the notice is filed, whether or not the Administrator acts.

Section 402(b)(11) exempts an offer to existing security holders if no commission other than a standby commission is paid for soliciting them, or if the issuer first files a notice of the terms and the Administrator does not disallow the exemption by order within the next five full business days. Since a solicitation commission is being paid, the notice route applies. The exemption requires no affirmative approval.Uniform Securities Act §402(b)(11)

The executor of an estate sells shares of an unregistered closely held company that were part of the decedent's assets, to settle the estate. Must the shares be registered for the executor's sale?

• a.Yes, unless the executor first obtains a written order from the Administrator approving the sale of the shares.
• b.No, because a sale by an executor, receiver, trustee in bankruptcy or guardian is an exempt transaction.✓
• c.Yes, because the estate becomes an issuer of the shares as soon as the executor offers them to the public.
• d.No, but only if the shares are sold at a price at or above their appraised value on the date of death.

Section 402(b)(6) exempts transactions by an executor, administrator, sheriff, marshal, receiver, trustee in bankruptcy, guardian or conservator. These fiduciaries sell to administer property, not to raise capital, and the Act does not set a minimum price. No prior order from the Administrator is needed.Uniform Securities Act §402(b)(6)

Under the Uniform Securities Act (1956), a registered agent of a registered broker-dealer sells shares of a company that have been outstanding in the hands of the public for 200 days. The issuer is actually in business and has operated continuously for ten years, and a recognized securities manual lists its business description, officers, directors and audited financial statements. The price reasonably relates to the market, and the shares are not an unsold underwriting allotment. Is the transaction exempt from registration?

• a.Yes, because the class has been outstanding over 90 days, the manual information exists and the price is near the market.✓
• b.No, because the exemption covers only isolated non-issuer transactions, and an agent's regular sales for customers are not isolated.
• c.Yes, but only if the issuer also has a class of equity securities listed on a national exchange, since only listed issuers qualify.
• d.No, because only securities outstanding for at least one year in the hands of the public qualify for the agent non-issuer exemption.

Section 402(b)(2) exempts a non-issuer transaction by a registered agent of a registered broker-dealer in a class outstanding in the hands of the public for at least 90 days, provided the issuer is actually in business, the price is reasonably related to the market, the shares are not an unsold underwriting allotment, and a securities manual or an SEC filing on EDGAR carries the required business, officer, director and audited financial information. An issuer with listed equity must also have three years of continuous business or $2 million of audited assets, and the ten-year operating history meets that. Listing is not a requirement, the exemption is not limited to isolated transactions, and the holding period is 90 days, not one year.Uniform Securities Act §402(b)(2)

While its registration statement is pending but not yet effective in this state, a broker-dealer's agent gives preliminary information about the offering to several prospects. The agent accepts no orders and makes no sales. Under the exemptions, what is permitted?

• a.Offers only to institutional buyers, since an offer to individual investors is not allowed until the registration is effective.
• b.Both offers and sales, because filing of the registration statement lets the agent sell once it has been on file ten days.
• c.An offer, but not a sale, of a security registered under both this Act and the federal Act, while no stop order is in effect.✓
• d.Neither offers nor sales, because every communication about the offering is prohibited until the registration is effective.

Section 402(b)(12) exempts an offer, but not a sale, of a security for which registration statements have been filed under both this Act and the Securities Act of 1933, if no stop order or refusal order is in effect and no proceeding looking toward such an order is pending. No sale may close until the registration becomes effective.Uniform Securities Act §402(b)(12)

The Administrator finds that an issuer is using the limited-offering exemption to sell speculative securities to many unsophisticated buyers. May the Administrator act against this specific exemption, and what limits apply?

• a.Yes, but only after the issuer has been convicted of a securities law violation in a court of competent jurisdiction.
• b.No, because an exemption written into the statute cannot be limited by the Administrator for a specific security or transaction.
• c.Yes, by an order that voids every sale the issuer has already made under the exemption, since exemptions are privileges.
• d.Yes, by order after notice and a hearing, or summarily pending a hearing, but no order may operate retroactively.✓

Section 402(c) allows the Administrator to deny or revoke certain exemptions, including those for transactions in subsection (b), with respect to a specific security or transaction. That requires notice, a hearing and written findings, though a summary order may issue pending final determination. An order may not operate retroactively, so earlier sales are not made unlawful by it.Uniform Securities Act §402(c)

In a state proceeding, an issuer claims that its sale to a group of buyers fell within an exempt transaction. The facts are disputed. Who bears the burden of proving the exemption?

• a.The buyers, who must show they were outside the class.
• b.The issuer, because it is the party claiming the exemption.✓
• c.Neither side, since the exemption is presumed when facts conflict.
• d.The Administrator, who must show the exemption fails.

Section 402(d) puts the burden of proving an exemption, or an exception from a definition, on the person claiming it. The Administrator need not disprove the exemption, and the buyers carry no burden. Exemptions are therefore claimed at the claimant's risk.Uniform Securities Act §402(d)

A newly formed company with no operating history and no federal registration statement wants to sell stock to the public in the state. Which registration method remains available?

• a.Qualification, which any security may use and which is the only route open to this issuer✓
• b.Registration by filing, which is open to any issuer able to show net worth of at least $4,000,000
• c.Coordination, which needs only a state prospectus and a statement of maximum and minimum prices
• d.Registration by filing, which is open to any issuer once its charter is on file with the administrator

Qualification is available for any security, and it is the route when neither of the others fits. Coordination requires a federal registration statement already on file for the same offering, and filing requires that statement too, along with 36 months of operations, 500 holders of record, and the net worth test. A charter on file or a large net worth cannot stand in for the missing federal statement.Uniform Securities Act (1956) §§302-304

A registration statement filed by coordination becomes effective automatically at the moment the federal registration statement becomes effective if:

• a.The filing has been on file five business days and the issuer has paid the fee for a pre-effective hearing on the offering
• b.The administrator has completed a merit review and the underwriters have contracted to buy the entire issue as principals
• c.No stop order is pending, the filing has been on file ten days, and the price and discount statement has been on file two full business days✓
• d.No stop order is pending, the filing has been on file thirty days, and the administrator has approved the prospectus in writing

Section 303(c) sets three conditions: no stop order or Section 306 proceeding pending, the registration statement on file for at least ten days, and a statement of the maximum and minimum offering prices and maximum underwriting discounts on file for two full business days, unless the administrator shortens the periods. Thirty days is the period that applies to an application to register an agent or firm, and the administrator does not approve prospectuses. No hearing fee exists in this process. Merit review and a firm-commitment underwriting are not conditions of coordination.Uniform Securities Act (1956) §303(c)

An issuer filed its state registration by coordination 8 days ago, and the price and commission statement has been on file 3 business days. The federal registration statement goes effective today. When does state registration become effective?

• a.Today, since federal effectiveness alone triggers state effectiveness, whatever the length of the state filing period
• b.As soon as the ten-day filing period is met, which is two days from today, if no stop order is then pending✓
• c.Only when the administrator issues a written order granting registration, since nothing here is automatic
• d.Thirty days after the federal effective date, because the administrator needs time to review the filing

Under coordination, if the federal registration statement becomes effective before the state conditions are satisfied and they are not waived, the state registration becomes effective automatically as soon as they are. The filing has been on file 8 days, so the ten-day condition is met in two more days; the price statement condition is already satisfied. Federal effectiveness alone does not trigger state effectiveness while a condition is open, there is no thirty-day state delay, and the automatic mechanism applies to coordination, with a written order being the route for qualification.Uniform Securities Act (1956) §303(c)

An issuer has a federal registration statement for an equity offering at $3 per share. It has operated 40 months, has 600 holders of record of a Section 12 class, and has net worth of $5,000,000. Why can it not register by filing?

• a.The equity securities must be offered to the public at a price of not less than $5 per share✓
• b.Its net worth is below the $4,000,000 needed, since intangibles are deducted in full
• c.Its operating history is under the 36 months required, since only public-company months count
• d.Its record holders fall short of the 500 needed, since only holders who live in this state count

Filing eligibility requires, among other conditions, that an equity security be offered to the public at not less than $5 per share, and $3 fails that test. The issuer has 40 months of operations against 36 required, 600 record holders against 500, and $5,000,000 of net worth against $4,000,000, so the holder count, the operating history, and the net worth explanations each cite a test the issuer actually passes.Uniform Securities Act (1956) §302(a)(1)

Underwriters will receive total discounts of 12 percent of the aggregate public offering price of an offering that is otherwise eligible for registration by filing. What is the effect?

• a.The offering is not eligible by filing, since underwriting commissions and discounts may not exceed 10 percent✓
• b.The offering is eligible, but only after the administrator holds a hearing on the level of the commissions
• c.The offering is eligible, since the ceiling for filing is 15 percent of the net proceeds to the issuer
• d.The offering is not eligible, since commissions must not exceed 5 percent of the aggregate offering price

One condition for registration by filing is that the aggregate commissions or discounts to underwriters not exceed 10 percent of the aggregate public offering price. Twelve percent is above that limit, so another method such as coordination or qualification must be used. Fifteen percent and 5 percent are not the test, and the filing method has no hearing that can substitute for the ceiling.Uniform Securities Act (1956) §302(a)(1)(H)

An open-end investment company qualified its shares by coordination 20 months ago and has made no material change in its terms or selling method. Which statement is correct?

• a.It must use coordination again, since an investment company may not use filing under any condition
• b.It must qualify again, since filing is limited to issuers with 36 months of operating history
• c.It may register by filing only if it has 500 holders of record and underwriting discounts of 10 percent or less
• d.It may register by filing, since it qualified within the preceding 24 months and has not materially changed✓

An open-end investment company or unit investment trust may register by filing if it has qualified within the previous 24 months and there has been no material change in its terms, selling method, investment practices, or terms of sale. The 36-month, 500-holder, and 10 percent conditions are the tests for an ordinary operating issuer under the first paragraph and do not apply here.Uniform Securities Act (1956) §302(a)(2)

Which item is required in a registration statement by qualification?

• a.A balance sheet dated within ninety days before filing and unaudited statements for the last fiscal year only
• b.Audited statements for the five preceding fiscal years and a pro forma balance sheet dated within the prior year
• c.A balance sheet under four months old and profit and loss statements for the three preceding fiscal years✓
• d.A copy of the federal registration statement and the SEC's order declaring that statement effective

Qualification requires the issuer's balance sheet as of a date within four months before filing, plus a profit and loss statement and analysis of surplus for each of the three preceding fiscal years. Five years of audited statements, a ninety-day balance sheet with one year of unaudited figures, and a copy of an SEC effective order are not the statutory items, and an issuer that qualifies because it has no federal registration would have no SEC order to supply.Uniform Securities Act (1956) §304(b)(16)

A registration statement became effective on March 1 and the issuer's offering ended in April. May the issuer withdraw the registration in July if securities of that class remain outstanding?

• a.No, since it cannot be withdrawn for two years after its effective date under any circumstances
• b.Yes, since the registration lapses and may be withdrawn once the issuer completes the offering
• c.Yes, if it gives the administrator notice and the withdrawal takes effect thirty days after receipt
• d.No, it may not be withdrawn within one year of its effective date while securities of the class are outstanding✓

A registration statement may not be withdrawn for one year from its effective date if any securities of the same class are outstanding. The thirty-day withdrawal period belongs to the withdrawal of a person's registration, not a securities registration. The bar is one year, not two, and it applies only while securities of the class are outstanding.Uniform Securities Act (1956) §305(i)

Who may file a registration statement for a security?

• a.The issuer, an underwriter, or any registered investment adviser that recommends the security
• b.The issuer or its lead underwriter, but never a broker-dealer acting on its own
• c.Only the issuer, since nobody else has the information needed to sign the statement
• d.The issuer, another person on whose behalf the offering is made, or a registered broker-dealer✓

Section 305(a) allows a registration statement to be filed by the issuer, any other person on whose behalf the offering is to be made, or a registered broker-dealer, which lets a local broker-dealer register a security even if the issuer will not. Restricting filing to the issuer, or to the issuer and its underwriter, is narrower than the Act, and a registered investment adviser is not on the list.Uniform Securities Act (1956) §305(a)

As a condition of registering by qualification, the administrator requires that shares issued to promoters at one-tenth of the public price be held in escrow. This requirement is:

• a.Permitted, since securities issued to promoters within three years at a different price may be escrowed✓
• b.Permitted only if the issuer is in default on an earlier registered offering in the state
• c.Permitted only for shares issued to promoters within the six months before the offering is filed
• d.Prohibited, since the administrator may regulate the price of the offering only through a stop order proceeding

The administrator may by rule or order require, for qualification or coordination, that securities issued within the past three years, or to be issued to a promoter for a consideration substantially different from the public price, or to anyone for a consideration other than cash, be deposited in escrow, and that proceeds be impounded until a specified amount is raised. A stop order is a separate remedy that has nothing to do with this power, the look-back is three years rather than six months, and no earlier default is required.Uniform Securities Act (1956) §305(g)

Which of the following is a ground for a stop order against a registration statement?

• a.The issuer's earnings in the most recent fiscal year were lower than in the year before
• b.The offering has worked or would work a fraud upon the purchasers of the security✓
• c.The administrator disagrees with the issuer's judgment about the merits of its business plan
• d.The offering price of the security is lower than the price of comparable listed securities

Fraud upon purchasers is among the listed stop-order grounds, as are incomplete or misleading statements, willful violations, illegal business activity, unreasonable underwriting compensation or promoters' profits, ineligibility for filing, and failure to honor a coordination undertaking. Declining earnings, a lower price than comparables, or disagreement over business merit are not listed grounds.Uniform Securities Act (1956) §306(a)(2)

Which of the following correctly describes the administrator's procedure in a stop-order case?

• a.A stop order can be issued only by a court on petition of the administrator, with no administrative hearing held
• b.Stop orders need prior notice, a hearing, and written findings, but a summary postponement may come first✓
• c.A stop order takes effect only after a criminal conviction of the issuer or one of its officers
• d.A stop order may be entered at once without notice or hearing for any ground, since it is an emergency remedy

Except for the summary postponement or suspension in the first sentence of §306(b), a stop order requires appropriate prior notice, an opportunity for hearing, and written findings of fact and conclusions of law. After a summary order, the person may request a hearing within fifteen days after receipt of the notice. The administrator, not a court, enters the order, so the court-petition description is wrong, and no criminal conviction is needed. Entering an order at once for any ground would skip the hearing the Act requires for everything but the summary step.Uniform Securities Act (1956) §306(b)-(c)

An annuity contract issued by a state-authorized insurance company promises payments that vary with the results of a segregated investment account. Is it an exempt security under the insurance company exemption?

• a.Yes, if the insurer is organized in the same state as the purchaser and files a notice with the administrator
• b.No, because the exemption reaches only life insurance policies and never annuity contracts of any kind
• c.No, because the exemption excludes variable contracts tied to a separate securities account✓
• d.Yes, since any security issued by an insurer authorized in the state is exempt, whatever its terms

The exemption for securities issued by an authorized insurance company excludes an annuity, investment contract, or similar security whose payments are not fixed in dollars but depend substantially on the results of a segregated account invested in securities, which is how variable products are treated. The exemption is therefore not unlimited, a notice filing and a home-state insurer do not change the exclusion, and fixed annuities are within the exemption, so it does reach annuity contracts.Uniform Securities Act (1956) §402(a)(5)

Which commercial paper qualifies as an exempt security?

• a.A note payable within 9 months, issued in denominations of at least $50,000, and rated in one of the 3 highest categories✓
• b.A note payable within 9 months, issued in denominations of at least $25,000, with no rating needed if a bank guarantees it
• c.A note payable within 6 months, issued in any denomination, and sold only to investment companies and banks
• d.A note payable within 12 months, issued in denominations of at least $10,000, and rated in the single highest category

The commercial paper exemption covers an obligation to pay cash within 9 months, issued in denominations of at least $50,000, and rated in one of the 3 highest categories by a nationally recognized statistical rating organization. A 12-month maturity, a $10,000 or $25,000 minimum, and a requirement of only the top category all miss one of the conditions, and the paper is not exempt merely because buyers are institutions.Uniform Securities Act (1956) §402(a)(10)

A company's common stock is listed on the New York Stock Exchange. Its separate class of preferred stock is not listed, but ranks senior to the common. Is the preferred an exempt security?

• a.Yes, since a security senior or substantially equal in rank to an exchange-listed security is also exempt✓
• b.No, since only the listed class itself is exempt and every other class of the same issuer must register before sale
• c.No, since an unlisted class is exempt only if it has been outstanding for at least 90 days before the sale in the state
• d.Yes, but only for resales by registered agents on the exchange, and not for original sales by the issuer

The exchange-listed exemption extends to any other security of the same issuer that is of senior or substantially equal rank to the listed one, and to securities called for by listed rights or warrants. A senior unlisted preferred therefore qualifies. The 90-day outstanding period relates to the manual exemption for transactions, and this is an exemption of the security, so it is not limited to resales.Uniform Securities Act (1956) §402(a)(8)

A nonprofit organized and operated exclusively for charitable purposes offers its securities in the state. Which statement is correct?

• a.The securities are not exempt, since only government and bank securities are exempt without conditions
• b.The securities are exempt, and no notice or filing is needed to claim that exemption✓
• c.The securities are exempt only if every buyer qualifies as an accredited investor under Regulation D
• d.The securities are exempt only if the organization first files a notice thirty days before the offering

Securities of an organization operated not for private profit and exclusively for religious, educational, benevolent, charitable, fraternal, social, athletic, or reformatory purposes are exempt from registration, with no filing required to claim the exemption. The thirty-day notice is a condition of the employee benefit plan exemption, not this one, accredited-investor status is a federal Regulation D idea that the state exemption does not use, and the list of unconditional exemptions is far broader than government and bank securities. The burden of proving the exemption rests on the person claiming it.Uniform Securities Act (1956) §402(a)(9)

An employer wants its profit-sharing plan's investment contract to be exempt. What must the employer do?

• a.Notify the administrator in writing within thirty days after the first employee joins the plan
• b.Obtain a written order from the administrator granting the exemption before any employee joins
• c.Notify the administrator in writing at least thirty days before the plan begins✓
• d.File a registration statement by qualification and deliver a prospectus to each employee who joins

An investment contract issued in connection with an employees' stock purchase, savings, pension, profit-sharing, or similar plan is exempt if the administrator is notified in writing thirty days before the inception of the plan. A registration statement and prospectus delivery are not needed, notice given after an employee joins is late, and the administrator need not issue an order granting the exemption.Uniform Securities Act (1956) §402(a)(11)

Which of these is an exempt security under §402(a)?

• a.A revenue bond issued by a city to finance construction of a municipal water plant✓
• b.A bond of a foreign government with which the US has no diplomatic relations
• c.A bond of a private water company whose payments depend on a contract with the city
• d.A promissory note of a foreign corporation that is guaranteed by its parent corporation

Securities issued or guaranteed by the United States, a state, a political subdivision, or their agencies, including revenue obligations, are exempt. Foreign government securities are exempt only for Canada, its provinces, or governments with which the US currently has diplomatic relations, so a government without relations is not covered. A private company's note or bond, whether guaranteed by a parent or tied to a city contract, has no government issuer and gains no exemption.Uniform Securities Act (1956) §402(a)(1),(2)

Which statement about the administrator's power over exemptions is correct?

• a.The administrator has no power to revoke any exemption, since every exemption arises automatically from the statute itself
• b.Only certain exemptions, such as the 10-offeree and existing-holder ones, may be revoked, and not retroactively✓
• c.The administrator may revoke an exemption on summary order without notice and without a right to a hearing
• d.The administrator may revoke any exemption, retroactively, once a buyer has filed a written complaint

The administrator may by order deny or revoke the exemptions in §402(a)(8), (9), and (11) and in subsection (b), as to a specific security or transaction. Notice, hearing, and written findings are required, though a summary order is allowed with a fifteen-day hearing right. An order may not operate retroactively, so a revocation triggered by a complaint is wrong, and revocation without any hearing right is wrong too. The power does exist, so the view that statutory exemptions are untouchable fails as well.Uniform Securities Act (1956) §402(c)

A customer calls a registered broker-dealer and, without any recommendation, asks to buy shares of a non-exempt unregistered security from the firm's inventory. The transaction is:

• a.Exempt only if the customer is an institutional buyer, since individuals cannot waive registration
• b.Exempt only if the broker-dealer sold the shares as principal from its own inventory
• c.Prohibited, since any sale of a non-exempt unregistered security violates the registration requirement
• d.Exempt as an unsolicited non-issuer transaction handled through a registered broker-dealer✓

A non-issuer transaction effected by or through a registered broker-dealer pursuant to an unsolicited order or offer to buy is exempt, although the administrator may require the customer to acknowledge in writing that the order was unsolicited. The exemption is not restricted to institutions or to principal trades. Because it applies, the transaction is not simply a violation of the registration rule.Uniform Securities Act (1956) §402(b)(3)

An issuer sells unregistered stock only to two insurance companies and a bank in the state. Which statement is correct?

• a.Exempt only if each institution signs an investment letter and holds the stock for ninety days
• b.Exempt only if the issuer sells to no more than ten buyers in any twelve consecutive months
• c.Not exempt, since the exemption protects only sales that go through registered broker-dealers
• d.Exempt, because sales to financial institutions are exempt whatever the number of buyers✓

An offer or sale to a bank, savings institution, trust company, insurance company, investment company, pension or profit-sharing trust, or other financial or institutional buyer, or to a broker-dealer, is exempt whether it buys for itself or as a fiduciary. The ten-person limit excludes these institutions, so it does not cap the number here. Neither a holding period nor an investment letter is a condition, and the exemption does not depend on the use of a broker-dealer.Uniform Securities Act (1956) §402(b)(8)

In 12 consecutive months an issuer directs offers to 8 individual investors in the state and 4 insurance companies in the state, with no commissions, and the individuals buy for investment. Is the limited-offering exemption available?

• a.Yes, but only if the issuer first files a notice with the administrator at least five days in advance
• b.No, because all 12 offerees count toward the limit, which cannot exceed 10 persons
• c.No, because the exemption requires that the offerees all be institutions or accredited investors
• d.Yes, because only the 8 individuals count toward the limit of 10, not the insurance companies✓

The exemption allows offers directed to not more than ten persons in the state in twelve consecutive months, excluding the institutional buyers named in §402(b)(8), provided the seller reasonably believes the buyers are purchasing for investment and no commission is paid for soliciting. Counting 8 persons, the issuer is within the limit. Counting all 12 is wrong, and no advance notice is required for this exemption.Uniform Securities Act (1956) §402(b)(9)