Definition of Security
Consequences of Non Compliance
Most sales will meet one of the many
from registration provided by
. Those sales that do not comply with an exemption must be registered.
Exemptions from registration exist because there is something about the proposed sale that reduces the risk to investors. There are two types of exemptions, exempt securities, provided for by
, and exempt transactions, provided for by
Exempt securities are viewed as being inherently safer, principally either due to the nature of the issuer or the existence of additional regulation. They include securities issued or guaranteed by governmental entities, banks, insurance companies and public utility companies as well as securities listed on some securities exchanges or certain securities issued by not-for-profit entities or cooperative associations.
Exempt transactions are viewed as being safer because they are limited in scope, made only to a limited number of people known to the issuer or to a limited class of people either meeting certain income and/or net worth criteria, or made to people already well informed about the issuer, or specified transactions through a registered broker dealer.
Federal Covered Securities
Federal covered securities represent a special kind of exempt security. Pursuant to the Securities Act of 1933, states are preempted from requiring registration for certain securities. These include mutual funds, securities traded on the most prominent stock exchanges and private placements sold pursuant to Regulation D, Rule 506.
Using Rule 506 in Kansas
It is essential to note that no exemption from registration provides an exemption from the fraud provisions provided for in
. Selling securities is not like selling other products where the rule is simply buyer beware. There is a duty on the part of all persons selling securities not to make misrepresentations and not to omit facts that are necessary to understand the disclosures given (what many might call half truths.)
Consultation with staff
North American Securities Administrators Association
Securities and Exchange Commission
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