A craft-brewery owner in Tulsa wants to raise $2 million by selling promissory notes to 30 Oklahoma residents. He thinks "private placement" gets him a free pass. Wrong state, wrong section. Under the Uniform Securities Act, the note is a security, the brewery is the issuer, and Oklahoma's Administrator decides whether registration, an exempt transaction, or a fraud investigation comes next.
The Uniform Securities Act defines a security as any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest in profits, collateral trust certificate, preorganization subscription, transferable share, investment contract, voting trust certificate, certificate of deposit for a security, fractional undivided interest in oil/gas/mineral rights, or any put, call, straddle, or option on any security.
The catch-all is the investment contract, defined by the SEC v. Howey test (1946):
- An investment of money
- In a common enterprise
- With an expectation of profits
- Derived primarily from the efforts of others
KEY: If all four Howey prongs are met, the instrument is a security regardless of what it's called.
Common mistakes
- Treating fixed annuities as securities. Fixed annuities are insurance products, NOT securities under the USA. Variable annuities ARE securities. Fact patterns about "annuity sales" turn on which type.
- Confusing exempt securities with exempt transactions. Exempt securities (Treasuries, munis, bank stock) are exempt regardless of how sold. Exempt transactions (unsolicited orders, private placements to 10 or fewer non-institutionals) depend on HOW the sale happens.
- Picking the wrong private placement number. Under the USA the private placement transaction exemption limit is 10 non-institutional offerees in 12 months. (SEC Rule 506 uses 35 non-accredited, which is federal, not state.)
Bottom line
- A security includes notes, stocks, bonds, investment contracts (Howey), variable annuities, and options. Fixed annuities and commodities are NOT securities under the USA.
- The Howey four-prong test defines an investment contract: investment of money, a common enterprise, expectation of profits, and profits derived from the efforts of others.
- Three state registration methods: Notification (seasoned), Coordination (paired with SEC filing), Qualification (everything else). Effective for 1 year, renewable.
- Federal covered securities preempt state registration; states may require notice filing only, not merit review. Securities Act Section 18(b)(2) is what puts a fund registered under the Investment Company Act of 1940 in that class, and Section 18(c) is what...
Exam shortcut
"Fixed" before "annuity" or "life insurance" equals NOT a security. Variable always IS a security. If the question hinges on annuity registration, identify fixed vs. variable first. Counting offerees in a private placement? Cap is 10 non-institutional in 12 months under the USA. Institutional offerees don't count toward the 10. If retail offerees exceed 10, the transaction exemption is lost regardless of how few actually purchased.
The full lesson (about 3,434 words, 23 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- E7
- E8
- E9
- E10
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