Securities regulation frequently asked questions

state.or, Feb 14, 2005

What is a security?
What are the requirements for selling securities
in Oregon?
What exemptions are there from Oregon’s
registration or notice filing requirements?
What do I need to file if my offering qualifies
for a registration exemption?
Are there any federal or other state law
requirements that I need to comply with in order
to sell securities in Oregon?
What information do I need to provide to prospective
investors about my company and securities offering?
How do I register a securities offering in Oregon?
What do I need to file for a Rule 506 private placement offering?
Does Oregon require the Form U-2, Consent to Service of Process?
What are the filing fees in Oregon?
If I am required to register my securities offering in Oregon, how does the process work and how long does it normally take?
What are the penalties for failure to comply with the requirements of the Oregon Securities Law?
How do I apply to be licensed in Oregon as a broker-dealer?
How do I apply to be licensed in Oregon as an associated person of a broker-dealer?
What examinations are required for associated persons of broker-dealers?
Does Oregon require a broker-dealer to file financial statements?
How do I apply to be licensed or notice filed in Oregon as an investment adviser firm?
How do I apply to be licensed in Oregon as an IAR?
What examinations are required for IARs, and what exemptions are available?
Does Oregon have a de minimis licensing exemption?
Do I need to notify Oregon if information provided on my application changes after I have become licensed?
What is a security?
A Security is an investment instrument. It includes investments such as stocks, notes, bonds, debentures, investment contracts, interests in limited partnerships, and warrants, rights, or options to purchase any of the above. It may also include evidence of indebtedness or certificates of deposit. Under Oregon law, the definition of a Security specifically excludes an insurance or endowment policy or annuity contract for a fixed or variable sum of money.

What are the requirements for selling securities in Oregon?
In general, it is unlawful to sell securities in Oregon unless the offering has been properly registered with the Oregon Department of Consumer and Business Services, Division of Finance and Corporate Securities, or is a covered federal security and is properly notice filed in Oregon, or is exempt from registration pursuant to a specific statutory provision.

What exemptions are there from Oregon’s registration or notice filing requirements?
A full listing of the securities exempt from registration can be found in ORS 59.025 and the list of transactions exempt from registration are found in ORS 59.035. The most commonly used exemption is the transaction exemption for sales to ten or fewer residents of Oregon, provided there is no public advertising, no general solicitation, and no compensation paid to anyone for selling the securities. In order to use an exemption, an entrepreneur must comply with all of the conditions of the exemption. If any questions arise, the burden of proof is on the person claiming the exemption to demonstrate that the exemption was properly available.

What do I need to file if my offering qualifies for a registration exemption?
Except for solicitation of interest offerings, which must be registered, all other securities and transaction exemptions are self-executing. No filing or fee is required for a self-executing exemption.

Are there any federal or other state law requirements that I need to comply with in order to sell securities in Oregon?
Any entrepreneur who strictly limits the securities offering to persons residing in Oregon ("intrastate offering") need comply only with the Oregon Securities Law. But if any potential investors reside outside of Oregon, the entrepreneur must be aware of and comply with federal law as well as the law of each state where a potential investor resides. This may mean filing a separate application in each jurisdiction and obtaining a separate order of registration from each state as well as the Securities and Exchange Commission (SEC).

What information do I need to provide to prospective investors about my company and securities offering?
You must provide full and accurate information, including detailed financial information, about the company and the offering. This includes the company’s business plan, the management of the company, the precise way the funds from the offering will be used, and the specific risks associated with investing in the business. All offerings, regardless of whether they are registered or exempt from registration, are subject to the anti-fraud provisions requiring that all disclosures be accurate, complete and not misleading. If the offering document will contain any earnings or cost projections, you must carefully explain and justify the assumptions on which the projections are based. Any offering which must be registered with the Division must contain financial statements prepared in accordance with generally accepted accounting principles (GAAP). Further, if the offering amount is $500,000 or more and must be registered, the financial statements must be audited by an independent accountant.

How do I register a securities offering in Oregon?
A securities offering is registered by filing an application form, the disclosure document, information on who will sell the securities, and a filing fee. If the offering is also being registered with the SEC, you must file with the Division any document filed with the SEC. When the offering is authorized for sale in Oregon, an order of registration will be issued by the Division. No offers or sales may take place until the order is issued. There are specific rules concerning the several different registration processes available, depending on the amount to be offered in Oregon. Generally, the larger the amount of the offering, the more extensive the disclosure document will be. See the registration rules in Oregon Administrative Rule Chapter 441, division 65 for more information.

What do I need to file for a Rule 506 offering?
Within 15 days after the first sale in Oregon, the issuer must file a complete Form D (including the state signature page and a completed Appendix), and a filing fee of $225.

Does Oregon require the Form U-2, Consent to Service of Process?
No. ORS 59.155 provides that the Director of the Department of Consumer and Business Services shall be an agent for service of process for various persons including any applicant for registration of a security and every person who files a notice concerning federal covered securities. Therefore, it is not necessary to file Form U-2.

What are the filing fees in Oregon?
Filing fees for Qualification-type registrations are 1/10 of 1% (or 0.001) of
the amount being offered in Oregon, with a minimum fee of $200 and a maximum fee of $1,500.

Filing fees for Mutual Funds are $500 per portfolio/series (even though all the portfolios/ series are filed in one prospectus with one file number).

Filing fees for Unit Investment Trusts are $270 per portfolio/series (even though all the portfolios/series are filed in one prospectus with one file number).

Filing fees for Federal Rule 506 offerings (on Form D, under Regulation D—pursuant to Sec. 18(b)(4)(D)) are a flat $225, without regard to the dollar amount of the offering. This notice registration is for an indefinite period, rather than the one year period of past years.

Filing fees for other covered securities (Sec. 18(b)(3) and (b)(4), except for (b)(4)(D)) are 1/10 of 1% (or 0.001) of the amount being offered in Oregon, with a minimum fee of $200 and a maximum fee of $1,025.

If I am required to register my securities offering in Oregon, how does the process work and how long does it normally take?
If registration is required in Oregon, the offering will receive a merit review by the Division. This review is comprehensive and normally results in some changes to the disclosure document. The initial review focuses on identifying problems with the fairness of the terms of the offering and the adequacy of the information contained in the offering document. Several revisions may be required before the offering is ready to be cleared. The length of the review period varies with the number of comments issued and the speed of the company in responding to the comments. The process can take between one and several months.

What are the penalties for failure to comply with the requirements of the Oregon Securities Law?
Failure to comply with the Securities Law can subject the company and the entrepreneur to administrative, criminal and civil liability as well as the cost of defending such actions. It is important to emphasize that liability can be imposed for both fraudulent acts, such as intentionally deceiving an investor about a material fact concerning the company, and for non-fraudulent acts, such as failing to register an offering. Additionally, failure to comply with requirements could subject the seller to civil lawsuits initiated by the buyers of the investment.

How do I apply to be licensed in Oregon as a broker-dealer?
Any broker-dealer which is a member of the National Association of Securities Dealers (NASD) must apply through the Central Registration Depository (CRD) system by filing an amended Form BD showing Oregon is being added as a licensed jurisdiction. Our licensing fee of $100 will be withdrawn from your CRD account. You must also provide to us a manually signed BD-consent form 2302.pdf. In addition to this form, please send us a letter identifying (by name and CRD number) the person who will be the supervisor of the Oregon activity, and at least one person who will be licensed to transact business in Oregon. The supervisor need not be licensed in Oregon, and must be a different person than the licensed salesperson. Any broker-dealer which is not a member of the NASD must send all of the described documents, fees, and information directly to the Division.

How do I apply to be licensed in Oregon as an associated person of a broker-dealer?
Individuals associated with an NASD broker-dealer file a Form U-4 through the CRD system, showing Oregon is being added as a licensed jurisdiction. Our fee of $50 will be withdrawn from the broker-dealer's CRD account. Individuals associated with a non-NASD broker-dealer must send a manually signed Form U-4 directly to the Division along with the fees of $50.

What examinations are required for associated persons of broker-dealers?
Oregon requires proof of passing scores on two examinations. One exam must be a "blue sky" exam (Series 63 or 66) and one exam must be a product exam (Series 7 for a general securities license, or see other exams listed in Oregon Administrative Rule 441-175-0130(4) for a limited license). If exam scores are not shown on a CRD record for the individual, a copy of the document showing passing scores must be submitted to the Division.

Does Oregon require a broker-dealer to file financial statements?
No. Any financial information we need to review can be obtained from the NASD using the authority the firm gave the Division through the BD Consent Form.

How do I apply to be licensed or notice filed in Oregon as an investment adviser firm?
This licensing or notice filing process depends on whether the firm has an office location in Oregon, and whether the SEC or a state agency is the regulator of the firm. Under a federal law passed in 1996, the SEC was given jurisdiction over all investment advisers with more than $25 million under management. The state securities agency in the state where the investment adviser has its home office is the regulator of any firm with $25 million or less under management.

A firm with less than $25 million under management and located in Oregon will be regulated by the Division. An application consists of a complete Form ADV, a fee of $100, a surety bond in the amount of $10,000, a copy of any proposed contract with clients, and financial statements required by Oregon Administrative Rule 441-175-0100. The firm must also have at least one investment adviser representative (IAR) who is licensed by the federal government.

State regulated firms with a home office outside of Oregon must submit a completed Form ADV and a fee of $100 to the Division. In addition, the firm must state in letter form whether it is licensed in its home state and whether it complies with its regulator’s net capital or bonding regulations. The firm must also have at least one IAR.

Generally, federal covered investment advisers with an office location in Oregon, or with more than five non-institutional clients in Oregon, are required to notice file in Oregon.

The SEC requires all federal covered investment advisers to notice file through the Investment Adviser Registration Depository (IARD) system. The firm should file an amended Form ADV on IARD adding Oregon as a notice filing jurisdiction. The IARD will withdraw our notice filing fee of $100 from the firm’s account.

How do I apply to be licensed in Oregon as an IAR?
Through your employing investment adviser firm, submit a manually signed Form U-4, proof of passing appropriate exam(s) or exemption from the exam requirement, and pay a fee of $50 to the Division. Please note: the Division does not recognize independent contractors. All individuals must be connected to an investment adviser firm.

What examinations are required for IARs, and what exemptions are available?
Examinations specifically designed for IARs were created with an effective date of Jan. 1, 2000 by revising two existing exams previously offered through the exam testing centers. Unfortunately, the exam numbers were not changed, thus it is important for a regulator to know the date you took one of these exams. The two exams in question are Series 65 and Series 66. The Division currently accepts the following combinations of exams for IARs:

Series 65 prior to 1/1/00, and Series 7,
Series 66 after 1/1/00, and Series 7, or
Series 65 after 1/1/00
The Division exempts an individual from the exam requirement if the persons shows (1) proof of licensing as an IAR in any jurisdiction within the 2 years immediately prior to the filing of an application in Oregon, or (2) holding of a current professional designation of Chartered Financial Analyst (CFA), Certified Financial Planner (CFP), Chartered Financial Consultant (ChFC), Chartered Investment Counselor (CIC), or Personal Financial Specialist (PFS).

Does Oregon have a de minimis licensing exemption?
There is currently a de minimis exemption for any investment adviser firm with no place of business in Oregon and fewer than six Oregon clients. Accredited investors and institutional clients are omitted when counting the Oregon clients. There is no de minimis exemption for broker-dealers, meaning that the broker-dealer and its associated person would be subject to penalties for doing business prior to becoming licensed or exempted from licensing in Oregon.

Do I need to notify Oregon if information provided on my application changes after I have become licensed?
Yes. The requirement to report material changes applies to broker dealers, state and federal covered investment advisers, and the individuals associated with any of these firms. The nonexclusive list of what is a material change can be found in Oregon Administrative Rule 441-175-0105. To report the change, file an amended application form (BD, ADV, or U-4, as appropriate) within 30 days of the occurrence of the material change. Submit the amended filing through CRD or IARD if the original application went through either of those systems, or in paper format directly to the Division. Note: when filing an amendment in paper format for Form ADV, you should submit the first page with manual signature, and any page on which there is a change. Highlight or circle the changes. There is no fee for the amended filing.