Quick Answer
A state's securities law reaches a transaction when an offer to sell is made in the state, or an offer to buy is made and accepted there; the buy-side test inverts and reaches a narrower set of provisions. Neither party needs to be physically present. More than one state can have jurisdiction over the same transaction, and advisers face a broader "any instrumental act" standard.
These jurisdiction rules are heavily tested because a single fact pattern (a call, a mailed letter, an ad) can trigger more than one state's law at once.
What Is the Two-Prong Test?
The test has a sell side and a buy side, and they are mirror images. Which one applies depends on which side the person is on.
Sell side (reaching persons who sell or offer to sell). This is the test the exam leans on, and it carries antifraud, person registration, securities registration, federal-covered notice filings, unlawful representations, and civil liability:
- An offer to sell is made in the state, OR
- An offer to buy is made and accepted in the state
Buy side (reaching persons who buy or offer to buy). The prongs invert, and the reach is narrower: antifraud, person registration, and unlawful representations only. Civil liability and securities registration are not on this side:
- An offer to buy is made in the state, OR
- An offer to sell is made and accepted in the state
Exam Tip: Gotchas
- Do not apply the sell-side test to a buyer. A fraudster who directs a lowball offer to buy into the state is reached by the antifraud provisions the moment that offer is made there. No acceptance is required. Acceptance matters on the buy side only when the thing directed in was an offer to sell.
- The buy side has no civil liability. The private right of action runs against sellers. A defrauded seller does not get the buyer's rescission remedy.
- Either prong is sufficient; both need not be satisfied
- This means a single transaction can trigger jurisdiction in multiple states
Think of it this way: If someone in your state either sends out an offer or receives and accepts one, your state has a say. The state does not need to be on both ends of the deal.
When Is an Offer "Made in This State"?
An offer to sell or buy is considered made in a state when the offer:
- Originates from the state, OR
- Is directed by the offeror to the state AND received at the place to which it is directed
Important details:
- Neither party needs to be physically present in the state
- For mailed offers: an offer directed to a state is received at any post office in that state
- A phone call from State A to a prospect in State B means the offer is made in both State A (originates) and State B (directed to and received)
When Does Acceptance Occur "In This State"?
An offer is accepted in a state when:
- Acceptance is communicated to the offeror in the state, AND
- Acceptance has NOT previously been communicated to the offeror outside the state
For mailed acceptance: acceptance is communicated in the state when the offeree directs it to the offeror in the state, reasonably believing the offeror to be in the state, and it is received at the place to which it is directed (or at any post office in that state). Receipt is a required element, not an afterthought, exactly as it is on the offer side.
Can More Than One State Have Jurisdiction?
A single transaction can trigger jurisdiction in multiple states simultaneously. This concept is frequently tested:
- An offer that originates in State A and is directed to State B is made in both states under the "made in this state" rule above
- Both State A and State B may exercise jurisdiction over the same transaction
- A state should not be used as a "base of operations" for defrauding persons in other states; this is why the originating state also has jurisdiction
- More than one state's law may apply to a single transaction simultaneously
Exam Tip: Gotchas
- Multiple states can have jurisdiction over the same transaction. If a broker-dealer in State A calls a prospect in State B, BOTH states have jurisdiction over that offer. The originating state (A) and the receiving state (B) can both regulate the transaction.
What Communications Are Excluded From Jurisdiction?
Certain media-based communications do NOT trigger jurisdiction in a state, even if they reach people there:
| Exclusion | Details |
|---|---|
| Out-of-state publication | A bona fide newspaper or publication of general, regular, and paid circulation that is not published in the state circulates in the state |
| In-state publication with mostly out-of-state circulation | A publication published in the state but with more than two-thirds (2/3) of its circulation outside the state during the past 12 months |
| Out-of-state broadcast | A radio or television program originating outside the state is received in the state |
Why these exclusions exist:
- General-circulation media cross state lines incidentally
- Without exclusions, a national newspaper ad would trigger registration in every state
- The exclusions prevent this unintended reach
Key details:
- A broadcast "originates" where the microphone or camera is located, not at any relay station
- These exclusions apply to the media itself; they do NOT protect a person who follows up with direct, targeted solicitation into the state
Exam Tip: Gotchas
- The 2/3 rule only ever matters in the state where the publication is published. The two exclusions above are independent routes. Everywhere else, an ad is already excluded because the paper "is not published in this state," whatever the circulation split. So a securities ad in a newspaper published in State A is not an offer in State B, at 80% outside circulation or at 60%. It is only in State A itself that the split decides: with more than 2/3 of circulation outside State A over the past 12 months, the ad is not an offer in State A either; at 60% outside, the 2/3 test fails and the ad IS an offer in State A. Running the 2/3 test against the states where the paper merely circulates is the trap.
- Media exclusions protect only the media, not follow-up contact. A national newspaper ad may not trigger jurisdiction, but if a broker then calls a reader in that state, the call IS a separate offer made in the state.
Why Do Investment Advisers Face a Broader Jurisdictional Reach?
Investment advisers and investment adviser representatives (IARs) face a broader standard than the offer/acceptance test, but the broader test is not a blank check for every provision of the Act:
- The advisory antifraud, investment-adviser registration, and unlawful-representation provisions apply when any act instrumental in effecting prohibited conduct is done in the state
- This is wider than the two-prong offer/acceptance test that governs broker-dealers and agents
- Neither party needs to be present in the state
- This means even preparatory or supporting activities in a state can trigger jurisdiction for advisers
- The instrumental-act trigger does not automatically activate every provision of the Act, only the ones named above
Exam Tip: Gotchas
- Investment advisers face a BROADER jurisdictional standard than the basic two-prong test. For broker-dealers, jurisdiction requires an offer or acceptance in the state. For advisers, ANY act instrumental in effecting prohibited conduct is enough, but only for the advisory antifraud, registration, and unlawful-representation rules, not the whole Act.
What Should You Check on Exam Day?
- Read the fact pattern for the seller/buyer distinction before applying the two-prong test. The sell side and buy side are mirror images, but the buy side never reaches civil liability or securities registration.
- Do not assume a single state has jurisdiction. Test both the originating state and the receiving state.
- Run the 2/3 circulation test only against the state where the publication is actually published; everywhere else, the out-of-state-publication exclusion already applies regardless of the split.
- A media exclusion covers only the media itself. A follow-up call or letter into that state is a separate, unexcluded offer.
- For advisers, ask whether ANY instrumental act touched the state; you do not need a completed offer or acceptance.