The Securities Act of 1933 Overview
Regulates the primary market. The two primary purposes of the Act are:
1. To provide investors with a full and fair disclosure of all the information needed to make an informed investment decision
2. To prevent fraud in the sale of new issues of securities
The Securities Exchange Act of 1934 Overview/Purpose
Regulates the secondary market, not the primary market. It provided for the creation of the SEC.
Uniform Securities Act USA
Definitions
Definition of a "Broker-Dealer" under the Uniform Securities Act (B/D)
as any person engaged in the business of effecting securities transactions in securities for the accounts of others or for its own account.
Definition of an "Agent" under the Uniform Securities Act USA
Any individual who represents a Broker/Dealer or an Issuer in effecting or attempting to effect purchases or sales of securities.
Definition of an "Investment Advisor" under the Uniform Securities Act
Any person who: for Compensation engages in the Business of Advising others about securities directly or indirectly. Remember: "ABC" = Advising, Business & Compensation.
Definition of "Investment Advisor Representative" under the Uniform Securities Act
An IAR is anyone who:
1. Makes recommendations or gives advice about any securities including exempt securities, 2. Manages client accounts or portfolios, 3. Determines recommendations given to clients , 4. Solicits, offers, or negotiates for the sale of or sells investment advisory services, 5. Supervises employees performing IAR functions.
Definition of "Federal Covered Securities" under the Uniform Securities Act
Securities "covered" by federal law (Section 18 of the 1933 Act) and do not need to register at the State level, but may need to file. The list includes: 1. securities listed on a national stock exchange (now including NASDAQ), 2. investment company shares (e.g. mutual fund shares), 3. securities sold to "qualified purchasers".
Transactions under the Uniform Securities Act
1. Isolated non-issuer transactions 2. Unsolicited Transactions 3. Fiduciary Transactions 4. Bonafide Pledges, 5. Underwriter Transactions, 6. Transactions with Financial Institutions, 7. Private Placement (not more than 10 persons), 8. Mortgage Bonds (units), 9. Pre-organization subscription transactions, 10. Rights, Warrants, or convertible securities (no commission paid).
Discipline & Penalties of USA
If an Administrator intends to suspend or revoke a registration, what is the registrant entitled to under the USA?
In any disciplinary proceeding where the respondent is at risk of being denied his license or having his license suspended or revoked, he or she is entitled to the following protections:
1. appropriate prior notice
2. opportunity for a hearing
3. written findings of fact and conclusions
Civil Liabilities for Violations of the Uniform Securities Act
The maximum compensatory damages that may be imposed by a civil court for violation of the USA are recovery of the consideration paid, accrued interest, costs of the litigation, and reasonable attorney's fees. Notes: The statute of limitations is 3 years after the date of the alleged violation.
Maximum Criminal Penalties for Violations of the Uniform Securities Act
$5,000 fine, imprisonment for 3 years, or both. The statute of limitations for bringing criminal charges is 5 years after the date of the alleged violation.
Record Keeping Requirements under USA
Once a broker/dealer or investment advisory firm is registered, what are the recordkeeping requirements under the USA?
Under the Uniform Securities Act, every registered broker/dealer and investment adviser shall make and keep records as the Administrator prescribes by rule or order, except as provided by Federal Law. Records should be preserved for a period of time prescribed by the Administrator at the State level and should be preserved for 5 years under Federal Law.
The USA defines a Federal Covered Investment Advisor as an IA who comes within the definition of an IA in the federal Investment Advisors Act of 1940. This includes:
1. An advisor to a registered investment company
2. An advisor with Assets Under Management (AUM) of $100 million or more (formerly $25 million or more)
Investment Advisors Act of 1940
Definition of an Investment Company under the Investment Company Act of 1940
A company that issues its own shares to the public, invests those funds, and manages a portfolio for the benefit of its shareholders.
Definition of an Investment Adviser under the Investment Advisors Act of 1940
1. Provides Advice about securities
2. Is in the Business of providing advice
3. Is Compensated in any form for giving advice. Note: Remember "ABC"
The Investment Advisors Act of 1940 defines a federal covered IA as a person who:
1. Manages assets of $100 million or more (previously $25 million)
2. Advises a registered investment company
Recordkeeping Requirements (# of years) under the Investment Advisors Act of 1940
Books and records must be retained for 5 years while in operation and for 3 years after the IA terminates its business.
Criminal Penalties under the Investment Advisors Act of 1940
Any person who violates the Investment Advisors Act of 1940 or any SEC rule or regulation is subject to a fine not exceeding $10,000, imprisonment of 5 years, or Both.
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