All-or-None Representations and Payment Handling

Both rules share the same exemption. A firm commitment offering, where there is no sales contingency to misrepresent and no pending payment to hold, is carved out of both.

What Must Be True for an All-or-None or Mini-Max Representation to Be Honest?

This is the same representation pattern behind the mini-max method taught earlier in this unit: a mini-max offering makes exactly this kind of conditional refund promise, and it has to be honored the same way an all-or-none offering does.

Representing an offering as all-or-none, or on any other basis where consideration will be refunded if all or some of the securities are not sold, is a manipulative or deceptive device unless that representation is actually honored:

• All of the securities, or the stated part, sell at the specified price within the specified time.
• The seller receives the total amount due by a specified date.

If those conditions are not met, the consideration must be promptly refunded.

Exam Tip: Gotchas

• Neither rule states a fixed number of days for "specified time" or "specified date." The offering documents set the actual deadline; the rule only requires that whatever deadline is promised is actually met, and that a refund is prompt when it is not.

Where Must Investor Money Sit While a Contingency Is Still Pending?

A broker, dealer, or municipal securities dealer participating in a distribution other than a firm commitment may accept part of the sale price only if the money is promptly transmitted to the persons entitled to it. When payment depends on a contingency, an all-or-none or mini-max structure, the money must instead be:

• promptly deposited in a separate bank account, with the broker-dealer acting as agent or trustee for the beneficial owners, until the contingency is resolved and the funds are promptly transmitted or returned, or
• promptly transmitted to a bank that has agreed in writing to hold the funds in escrow and to transmit or return them directly to the persons entitled once the contingency is resolved.

Exam Tip: Gotchas

• Neither holding method is preferred over the other. A separate bank account with the broker-dealer as agent or trustee and a written escrow arrangement with a bank both satisfy the rule; the broker-dealer simply cannot hold contingent funds directly in its own account.

Why Is a Firm Commitment Offering Exempt From Both Rules?

A firm commitment offering is exempt from the all-or-none representation rule, subject only to customary closing conditions such as a market-out, because there is no sales contingency to misrepresent.

A firm commitment underwriting is also exempt from the entire payment-handling rule, not just its separate-account and escrow requirement. The exemption sits in the rule's opening words, so the prompt-transmission requirement never reaches a firm commitment offering either.

Exam Tip: Gotchas

• These two rules are not the same rule tested twice. One polices what the firm says an all-or-none or mini-max offering means and whether that promise is kept. The other polices where investor money physically sits, a separate bank account or an escrow agent, while the contingency is still pending. An exam item can test either half of this pair.
• A firm commitment offering is exempt from all of the payment-handling rule, not only its separate-account and escrow requirement. The prompt-transmission requirement does not reach a firm commitment either.

What Should You Check on Exam Day?

• Distinguish the all-or-none representation rule (what the firm may promise) from the payment-handling rule (where the money sits); they pair together on the exam.
• Confirm an all-or-none or mini-max promise is honored only if the stated amount sells in time and payment is received by the stated date.
• Match a contingency structure to its required money handling: a separate bank account as agent or trustee, or a written escrow agreement.
• Remember a firm commitment offering is fully exempt from the payment-handling rule, not just its separate-account and escrow piece.