Jurisdictional Scope
You know what the Uniform Securities Act (USA) is and who enforces it. The next question: when does a state's securities law apply? Section 414 defines the jurisdictional boundaries, and this is one of the most frequently tested areas on the Series 63.
The Two-Prong Test (Section 414(a))
Key provisions of the USA (including antifraud, person registration, and securities registration) apply when either of two conditions is met:
- An offer to sell is made in the state, OR
- An offer to buy is made and accepted in the state
- 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 an Offer Is "Made in This State" (Section 414(c))
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 Acceptance Occurs "In This State" (Section 414(d))
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.
Multi-State Concurrent 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 Section 414(c)
- 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.
Exclusions from Jurisdiction (Section 414(e))
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 applies to publications PUBLISHED IN the state. A newspaper published in State A with 80% of its circulation outside the state runs a securities ad. That ad does NOT trigger jurisdiction in the other states where it circulates (more than 2/3 is outside). But if only 60% of circulation is outside (less than 2/3), the exclusion does NOT apply.
- 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.
Investment Advisers: Broader Jurisdictional Reach (Section 414(f))
Investment advisers and investment adviser representatives (IARs) face a broader standard than the offer/acceptance test:
- State law applies when any act instrumental in effecting prohibited conduct is done in the state
- This is wider than the two-prong offer/acceptance test in Sections 414(a)-(d)
- Neither party needs to be present in the state
- This means even preparatory or supporting activities in a state can trigger jurisdiction for advisers
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.