With the rules about what must be disclosed and what must never be said, the next question is: who oversees the communications that go out to investors? Under the Uniform Securities Act (USA), the state Administrator has broad authority to require firms to file their marketing materials.
Administrator's Authority
Under the USA, the Administrator may, by rule or order, require the filing of any:
- Prospectus
- Pamphlet
- Circular
- Form letter
- Advertisement
- Other sales literature or advertising communication addressed or intended for distribution to prospective investors, including clients or prospective clients of an investment adviser
Limitation on Filing Authority
This filing authority does NOT apply to:
- Securities or transactions that qualify as exempt under the USA's exempt-securities and exempt-transaction provisions
- Federal covered securities
Flexibility of the Filing Requirement
The USA does not mandate a single approach. The Administrator has flexibility to require different timing for different situations:
| Formula | Description |
|---|---|
| Pre-use filing | Filing before distribution. Filing only, no approval needed |
| Pre-use approval | The Administrator's affirmative approval required before the material may be used |
| Concurrent filing | Filing at the time of use |
| Post-use filing | Filing after distribution |
- The Administrator may apply different filing requirements to different types of securities or communications through general rulemaking authority
- The Administrator's rulemaking authority gives broad discretion to tailor requirements as needed
Filing Does NOT Equal Approval
Consistent with the registration-is-not-approval principle covered in the previous section, the Administrator reviewing marketing materials does NOT constitute endorsement of the content.
- Filing is a compliance obligation, not a seal of approval
- Even if the Administrator reviews and does not object to a filing, that is not an endorsement of the investment
- Whatever the filing formula, no filing formula converts into an endorsement of the investment's merits
Exam Tip: Gotchas
Separate the two senses of "approval":
- Merits: nothing the Administrator does (registering a person or a security, granting an exemption, receiving a filing) means the state passed on the merits of, recommended, or endorsed an investment. Saying otherwise is unlawful. "The Administrator approved this security" is never true.
- Process: separately, a state may by rule or order require sales literature to be affirmatively approved before it is used, and selling a security in violation of such a rule is a basis for civil liability. "The Administrator approved this advertisement's use" can be literally true as a process matter.
The exam's "registration is not approval" theme is about merits, not about whether a document ever gets cleared for use.