An agent of a state-registered broker-dealer sells a customer a municipal bond issued by a local housing authority. The bond is exempt from registration as a municipal security. During the sales presentation, the agent makes materially false statements about the bond's yield and the authority's financial condition. The customer later complains to the Administrator.
Under the Uniform Securities Act, which statement is correct? Answer: The exemption from registration does not protect the agent or the broker-dealer from liability under the antifraud provisions of the Act.
Uniform Securities Act § 101 makes fraudulent conduct unlawful in connection with every offer, sale, or purchase of a security, and it applies to exempt securities as well. The § 402 exemptions remove only the registration requirement; they do not immunize the agent or the broker-dealer from antifraud liability, and the Administrator retains full authority to investigate and discipline. The suggestion that the bond loses its exempt status because of fraud inverts the rule: the exemption does not vanish, but the antifraud provisions continue to apply. A defrauded buyer may also seek rescission or damages under § 410, so the customer's remedy is not limited to accepting a written rescission offer; the 30-day acceptance window applies only when a seller makes such an offer.
- Assuming none of the following securities is listed on an exchange designated by the Administrator, all of the following are exempt securities under the Uniform Securities Act EXCEPT:
Answer: Common stock of a bank holding company.
Uniform Securities Act § 402(a) — bank and insurance company exemptions. Securities issued by banks, savings institutions, trust companies, credit unions and insurance companies are exempt from registration, so the national bank's common stock, the credit union's common stock and the life insurance company's debentures are all exempt. A bank holding company is not a bank, and the bank exemption does not extend to a holding company merely because it owns a bank. With no designated-exchange listing, the holding company's stock is not exempt and would have to be registered in the state unless a transaction exemption applies.
- Under the Uniform Securities Act, which of the following statements is true regarding securities that are exempt from registration?
Answer: An exempt security is exempt from registration in every transaction, but the antifraud provisions of the Act still apply to its offer and sale.
Uniform Securities Act §§ 101 and 402. Section 402(a) exempt securities are exempt from registration in every transaction, but § 101 applies the antifraud provisions to every offer, sale or purchase, whether or not the security or transaction is exempt. The statement that an exempt security remains subject to the antifraud provisions is therefore correct. The statement that an exempt security is exempt only in the particular transaction confuses exempt securities with exempt transactions, which are transaction-specific by nature. The statement that a sale in an exempt transaction turns the security into an exempt security reverses the rule: a transaction exemption covers only that transaction, and the security itself remains subject to registration in later transactions. The statement that a fraudulent sale automatically terminates the exemption is wrong: fraud exposes the seller to injunction, cease-and-desist, criminal and civil liability, but the statutory exemption does not self-revoke and no registration is automatically triggered.
- Under the Uniform Securities Act, which of the following commercial paper issues is an exempt security?
Answer: Commercial paper issued by a manufacturing company, rated in the third-highest category, maturing in 270 days, sold in minimum denominations of $50,000.
Uniform Securities Act § 402(a) — commercial paper exemption. Commercial paper is an exempt security only if it satisfies three conditions at once: a maturity of nine months or less, a minimum denomination of at least $50,000, and a rating in one of the three highest rating categories. The manufacturing company's paper satisfies all three: 270 days is nine months or less, the $50,000 minimum is met, and the third-highest category is still within the three highest. The issuer's line of business is not a factor. The finance company's 300-day paper fails the maturity condition, since 300 days exceeds nine months, even though its rating and denomination are acceptable. The retail chain's paper fails because its $25,000 minimum denomination is below the required $50,000 floor. The utility's paper fails the rating condition: the fourth-highest category is outside the top three, regardless of its short maturity and proper denomination.
A corporation establishes an employee stock bonus plan and will offer interests in the plan to its employees in a state beginning January 15. The corporation files a notice with the state Administrator on January 5.
Under the Uniform Securities Act, which statement is correct regarding the plan interests? Answer: The interests are not exempt because the notice was filed only 10 days before the plan began, not the required 30 days.
Uniform Securities Act § 402(a) exempts employee benefit plan interests only if the issuer gives the Administrator notice at least 30 days before the plan commences. The corporation filed on January 5 for a January 15 start, a lead time of only 10 days, so the exemption's notice condition is not satisfied. The interests are securities; they are not excluded from the definition, which is why the exemption exists. The notice is a substantive condition of the exemption, not a formality. Form D is the filing for Rule 506 private placements, not the notice that the employee-plan exemption requires.
A corporation offers two series of commercial paper to investors in a state. Series A has a maturity of 8 months, a $50,000 minimum denomination, and an A-1 rating. Series B has a maturity of 10 months, a $100,000 minimum denomination, and an A-1 rating. The corporation intends to register neither series with the Administrator.
Under the Uniform Securities Act, which statement is correct regarding the two series? Answer: Only Series A is exempt; Series B is not exempt because its 10-month maturity exceeds the 9-month maximum for the exemption.
Uniform Securities Act § 402(a) exempts commercial paper only if all three conditions are met: maturity of 9 months or less, denominations of at least $50,000, and a rating in one of the three highest categories. Series A satisfies all three conditions and is exempt. Series B satisfies the denomination and rating tests, but its 10-month maturity exceeds the 9-month maximum, so it is not exempt and may not be offered without registration on these facts. The statement that both series are exempt ignores the maturity condition, the statement that only Series B is exempt reverses which series fails, and the 6-month limit is not the statutory standard.
- Under the Uniform Securities Act, which of the following statements is true regarding securities listed on an exchange designated by the Administrator?
Answer: A security listed on a designated exchange is exempt from registration in every transaction, including a public offering of that security by the issuer itself.
Uniform Securities Act § 402(a) — exchange-listed securities. Securities listed on an exchange the Administrator has designated are exempt securities, meaning they are exempt from registration in every transaction, including a public offering by the issuer itself. The statement that a listed security is exempt only in non-issuer transactions is wrong: that limitation applies to exempt transactions, not exempt securities. The statement that a listed security remains subject to the state's notice filing requirements is wrong: an exempt security is not subject to registration or notice filing. The statement tying the exemption to the issuer's continued currency in its SEC reporting is wrong: the exemption turns on the security's listing, not on the issuer's reporting status.
A life insurance company offers in a state an immediate fixed annuity contract under which the insurer will pay a fixed dollar amount each month for the annuitant's life. The company also offers shares of its common stock, which is not listed on any national securities exchange. The company believes neither product requires registration with the Administrator.
Under the Uniform Securities Act, which statement correctly describes the state registration treatment of the two products? Answer: The fixed annuity is not a security at all, while the common stock is a security that is exempt from registration.
Under Uniform Securities Act § 401, an annuity contract under which the insurer promises a fixed sum is not a security, so no securities registration applies to it. Under § 402(a), securities issued by an insurance company, including the company's own common stock, are exempt securities, and exchange listing is not a condition of that exemption. The statements that both products are exempt securities, that both must be registered, or that the stock loses exempt status because it is unlisted each blur the distinction between a product that is not a security and a security that is exempt from registration.
- Under the Uniform Securities Act, which of the following statements is true regarding the exemption for securities issued by nonprofit organizations?
Answer: Securities of a nonprofit university are exempt from registration, but securities of a for-profit corporation owned by the university are not.
Uniform Securities Act § 402(a) — nonprofit issuer exemption. The exemption covers securities issued by nonprofit religious, educational, charitable or fraternal organizations. A nonprofit university qualifies, but a for-profit corporation owned by the university is a separate issuer organized for profit, so its securities are not exempt. The statement that an organization qualifies merely by using the offering proceeds for religious or charitable purposes is wrong: the exemption depends on the issuer's own organization and operations, not on the use of proceeds. The statement requiring IRS recognition of a church is wrong because the state exemption does not incorporate an IRS determination. The statement limiting the exemption to offers to existing members or donors is also wrong: no such offeree restriction exists, and it confuses the exempt-security list with the separate exempt transaction for offerings to existing security holders.
A company has a class of preferred stock listed on an exchange named by the Administrator. The company now proposes to offer in the state a newly created class of common stock that will not be listed on any exchange.
Under the Uniform Securities Act, which statement is correct regarding the new common stock? Answer: The common stock is not exempt because the exchange-listing exemption does not cover this unlisted junior class of stock.
Uniform Securities Act § 402 exempts securities listed on an exchange named by the Administrator. The listing exemption does not make every security of the same issuer exempt; for a same-issuer security to share the exemption, it must be senior or substantially equal to the listed security. The new common stock is junior to the listed preferred stock and is not listed, so it is not an exempt security and requires state registration unless another exemption applies. The statement that the existing listing exempts the common stock ignores that limitation. Federal covered status likewise depends on the particular security, not on the issuer's having another listed class. Making the offering through a registered broker-dealer neither creates nor is a condition of a security exemption.
A state legislature creates a public corporation, the State Transportation Authority, to construct and operate toll bridges. The authority issues revenue bonds payable solely from the tolls it collects, and the bonds are not backed by the state's taxing power. The bonds are rated BBB by a nationally recognized rating agency. An agent of a state-registered broker-dealer plans to offer the bonds to retail customers in the state.
Under the Uniform Securities Act, which statement is correct regarding the bonds? Answer: The bonds are exempt securities because they are issued by an agency of the state, regardless of the source of payment.
Uniform Securities Act § 402(a) exempts securities issued by a state, its political subdivisions, and their agencies. The State Transportation Authority is a public agency created by statute, so its bonds are exempt even though they are revenue bonds payable solely from tolls, are issued through a separate legal entity, and are not backed by the state's general credit. A credit rating is not a condition of the exemption; the BBB rating neither creates nor destroys exempt status. Exempt status turns on the character of the issuer, not on the revenue source or the rating.
A country with which the United States maintains diplomatic relations has created a state-owned airline as a separate corporation under its laws. The airline proposes to offer bonds to investors in a state. The bonds are not guaranteed by the foreign government.
Under the Uniform Securities Act, which statement correctly describes the bonds? Answer: The bonds are not exempt securities because the exemption for foreign government securities does not extend to securities issued by a separate corporate entity.
Uniform Securities Act § 402(a) exempts securities of foreign governments with which the United States maintains diplomatic relations, but it does not exempt securities issued by foreign corporations or separate corporate entities. The airline is a separate corporation, and the bonds are not guaranteed by the foreign government, so the foreign-government exemption does not apply to the bonds. Being wholly owned by a foreign government does not make corporate debt an obligation of that government, and being organized under the country's laws is much broader than the exemption. The statement that the Act exempts only domestic government securities is also wrong: foreign government securities are explicitly exempt, so that reason cannot make the bonds nonexempt. A transaction-level exemption, if available, would not change the status of the bonds as nonexempt securities.
- Under the Uniform Securities Act, which of the following statements is true regarding the exemption from registration for interests in employee benefit plans?
Answer: Interests in employee benefit plans are exempt from registration if written notice is given to the Administrator at least 30 days before the plan begins operating.
Uniform Securities Act § 402 — employee benefit plan exemption. Interests in employee benefit plans are exempt securities only when the Administrator receives written notice at least 30 days before the plan begins operating; the statement with that timing is therefore correct. The statement that notice may be given on the date the plan begins operating misstates the timing; the notice must precede the plan's start by at least 30 days. The statement requiring a notice filed with the SEC and no notice to the Administrator names the wrong regulator: the exemption requires written notice to the Administrator, and an SEC filing cannot substitute for it. The statement adding an IRS-qualification requirement imports a federal tax condition the Uniform Securities Act does not impose; the state exemption turns on the statutory notice, not on tax-qualified status.
A bank holding company whose principal subsidiary is a national bank, and which is regulated by the Federal Reserve Board, proposes to offer its common stock to investors in a state. The stock is not listed on any exchange named by the Administrator.
Under the Uniform Securities Act, which statement correctly describes the offering? Answer: The common stock is not exempt because the exemption for bank securities applies to securities issued by banks, not by bank holding companies.
Uniform Securities Act § 402(a) exempts securities issued by banks, savings institutions, trust companies, and credit unions. A bank holding company is a separate entity and is not a bank, so its common stock is not within the bank exemption merely because the company is Federal Reserve-regulated or owns a national bank subsidiary. The stock is therefore not exempt on these facts. Accreditation of purchasers does not by itself exempt a transaction; private-offering exemptions require satisfaction of conditions such as the state private-placement limits or compliance with Rule 506.
- Under the Uniform Securities Act, which of the following statements is true regarding the exemption from registration of securities of foreign issuers?
Answer: Securities issued by a foreign government with which the United States maintains diplomatic relations are exempt securities, as are securities issued by Canada and its provinces.
Uniform Securities Act § 402(a) — foreign governmental securities. The exempt list includes securities of Canada and its provinces and securities of other foreign governments with which the United States maintains diplomatic relations; the statement describing both is correct. The statement that securities of any foreign corporation are exempt because the corporation is organized in a country with which the United States maintains diplomatic relations is wrong: the exemption runs to the sovereign itself, not to corporations. The statement limiting the exemption to Canada and its provinces is wrong because any foreign government with which the United States maintains diplomatic relations also qualifies. The statement conditioning the exemption on sales to institutional buyers is wrong: sales to institutional buyers are an exempt transaction under § 402(b), not a condition attached to the exempt-security status of foreign government securities.
