Desktop version

Home arrow Law

  • Increase font
  • Decrease font

<<   CONTENTS   >>


State securities administrators have jurisdiction over securities transactions that:

• Originated within their state.

• Are directed into their state.

• Are accepted in their state.

If a client draws a check on an out-of-state bank or has securities sent to another state, that does not give the securities administrator in that state jurisdiction.

The offer and acceptance of a security constitutes a transaction or the sale of a security. It is the actual conveyance of the ownership of the security for value.


Mr. Jones, a resident of Texas, receives a call from his investment representative, Bob, in New York. Bob recommends that Mr. Jones purchase 500 shares of XYZ based on his company's research and in line with Mr. Jones's investment objectives. Mr. Jones accepts the recommendation and purchases the 500 shares at the market.

In this case, the securities administrators from both Texas and New York have jurisdiction over the transaction. The state securities administrator from Texas can review the transaction because the sale was directed and accepted in Texas. Additionally, the state securities administrator from New York may review the transaction because the transaction originated from the representative's office within the state.

If in the above case Mr. Jones tells his representative that he'll think about it and then calls his representative in New York the next day from his summer home in California and purchases XYZ, the transaction would be subject to the jurisdiction of three state securities administrators:

1. The administrator from New York—because that is where the sale originated.

2. The administrator from Texas—because that is where the sale was directed.

3. The administrator from California—because that is where the sale was accepted.

State securities administrators also have jurisdiction over offers of securities that:

• Originated within their state.

• Are directed into their state.

An offer is considered to have been made in the state in which it originated, as well as the state to which it is directed.

If, in our example, Bob, the representative in New York, directs the offer of XYZ to Mr. Jones in Texas and Mr. Jones elects not to purchase the stock, the offer would be subject to the jurisdiction of the securities administrators in both New York and Texas. The state securities administrator in New York would have jurisdiction because that is where the representative was sitting when he made the offer. The administrator in Texas would have jurisdiction because that is where the offer was directed.

An offer or sale of a security that may be converted or exchanged into another security also constitutes an offer or sale of the security into which the original security may be converted.

State securities administrators may:

• Investigate securities-related business within their borders.

• Issue subpoenas for people, books, and records from any state.

• Compel witnesses to testify.

• Issue cease and desist orders and seek injunctions.

• Deny, suspend, or revoke registrations, licenses, and exemptions.

• Adopt and amend rules.

State securities administrators may investigate complaints and alleged violations both in and out of their home state. The investigation may be conducted publicly or in private. During the course of the investigation, the administrator may subpoena people, books, and records from any state and may compel witnesses to testify under oath or to give a written sworn statement.

Individuals brought before the administrator may not invoke their Fifth Amendment right against self-incrimination. The administrator may force them to testify about the matter being investigated. However, a person who is forced to testify may not be prosecuted based on the testimony that he or she was compelled to offer. Thus, a witness in this situation is given partial immunity.

If the administrator finds that a person has engaged in or is about to engage in any activity that would violate the USA, the administrator may issue a cease and desist order. A cease and desist order may be issued without a hearing. The administrator has the power to prevent violations before they take place. However, only a court of law has the authority to force compliance with the order and to prescribe penalties for violating the order.

The state securities administrator may not:

• Establish requirements for broker dealers that exceed federal requirements.

• Establish requirements for investment advisers that exceed the requirements of the adviser's home state.

• Require the registration of federally covered advisers.

<<   CONTENTS   >>

Related topics