Texas Securities Act
Codified at Tex. Gov't Code §§ 4001-4008 (recodified from former Vernon's Ann. Civ. St. art. 581-1), the Texas Securities Act governs securities offerings and sales involving Texas. The Act requires registration of securities offered in Texas unless an exemption applies, regulates dealers and agents, and provides anti-fraud enforcement authority for the Texas State Securities Board. Largely preempted for federal "covered securities" under NSMIA, but state notice filings and anti-fraud enforcement remain.
The Texas Securities Act (TSA) is the principal Texas statutory framework for securities regulation. Codified at Tex. Gov't Code §§ 4001-4008 (recodified from former Vernon's Ann. Civ. St. art. 581-1 in 2019), the Act governs securities offerings and sales involving Texas. The TSA requires registration of securities offered in Texas unless an exemption applies, regulates dealers and agents, and provides anti-fraud enforcement authority. The National Securities Markets Improvement Act of 1996 (NSMIA) preempted state registration for "covered securities", but Texas retains notice filing requirements, fee authority, and anti-fraud enforcement.
Texas State Securities Board
The Texas State Securities Board (TSSB) administers and enforces the TSA. The Board is the principal Texas state agency for securities regulation. Functions: (1) securities registration review and approval; (2) dealer and agent registration; (3) investment adviser regulation; (4) notice filings for federal covered securities; (5) enforcement, civil and criminal; (6) investor education. Headquartered in Austin; coordinates with SEC and other state regulators through NASAA (North American Securities Administrators Association).
Securities registration in Texas
Securities offered or sold in Texas must be registered under the TSA unless an exemption applies. Registration methods: (1) coordination, concurrent SEC registration; primarily relevant for IPOs; (2) qualification, substantive review by TSSB; rare in modern practice; (3) filing, notice procedure for certain federal-covered offerings. Registration is rare in modern practice, most offerings rely on exemptions or NSMIA preemption.
Common exemptions
The TSA includes exemptions for: (1) federal covered securities, NSMIA preemption; notice filing required; (2) private offerings, § 4005.011 (parallel to federal Reg D framework); (3) institutional investor sales, § 4005.012; (4) existing security holder offerings; (5) limited offerings, small offerings to limited investors; (6) federal exempt securities, government securities, bank securities, etc. Each exemption has specific requirements; counsel review is essential before reliance.
NSMIA preemption framework
The National Securities Markets Improvement Act of 1996 (NSMIA) preempts state registration for "covered securities," including: (1) SEC-registered securities, Form S-1, S-3, F-1, etc.; (2) Rule 506 offerings (both 506(b) and 506(c)); (3) certain investment company securities; (4) specific other categories. States retain authority to: (a) require notice filings and fees; (b) enforce anti-fraud provisions; (c) regulate broker-dealers and agents. The preemption framework simplifies multi-state offerings substantially, Rule 506 offerings need only file notice with each state where sales occur, not register in each state.
Texas notice filing requirements
For federal covered securities sold to Texas residents, notice filing with TSSB is required. Standard requirements for Rule 506 offerings: (1) copy of Form D; (2) filing fee; (3) Form U-2 (consent to service of process); (4) typically due within 15 days of first sale to Texas resident; (5) amendments for material changes. Other federal-covered securities (Reg A+, Rule 147A, etc.) have parallel notice procedures. Failure to make notice filing does not void federal exemption but exposes issuer to TSSB enforcement and potential rescission liability.
Dealer and agent registration
The TSA requires registration of: (1) dealers, persons engaged in selling securities; (2) agents, individuals representing dealers; (3) investment advisers, providing investment advice; (4) investment adviser representatives. Registration involves examination, application, and ongoing reporting. Texas coordinates registration through the Central Registration Depository (CRD) for FINRA-affiliated dealers, with parallel registration for state-only registrants. Issuer-direct sales are typically exempt if conducted by officers and directors without compensation tied to sales.
Civil liability, § 4008
The TSA provides private cause of action for securities violations under § 4008.001-4008.105: (1) rescission rights, investors can rescind purchases for unregistered securities or material misrepresentations; (2) damages, for losses caused by violations; (3) three-year statute of limitations for most claims; (4) strict liability for unregistered offerings (no scienter required); (5) attorney's fees available in some claims. The civil liability framework parallels federal Section 12(a)(1) and Section 12(a)(2) of the Securities Act, with similar rescission remedy for violations.
Anti-fraud enforcement
The TSA includes broad anti-fraud provisions parallel to federal Rule 10b-5: prohibits material misrepresentations, omissions, and fraudulent conduct in securities transactions. The TSSB has authority to: (1) issue cease and desist orders; (2) impose administrative penalties; (3) refer matters for criminal prosecution; (4) coordinate with SEC and other states. Texas anti-fraud enforcement remains in full force despite NSMIA preemption, states retain anti-fraud authority over all securities transactions involving their residents.
For Texas issuers, TSA compliance is operational but cannot be ignored. Best practice: (1) for Rule 506 offerings, file Texas notice with TSSB within 15 days of first sale to Texas resident; (2) maintain documentation of notice filings and fees; (3) for small offerings or local-only offerings, evaluate Rule 504 vs. Rule 506 trade-offs (504 requires state-by-state compliance; 506 preempts state registration); (4) ensure dealer/agent compliance for any compensated sales activity, issuer-direct sales by officers/directors without sales compensation typically exempt; (5) maintain anti-fraud discipline regardless of federal preemption, Texas anti-fraud enforcement is independent. For investors: (1) verify TSSB notice filing for offerings sold to Texas residents; (2) preserve TSA rescission rights under § 4008, three-year statute of limitations; (3) coordinate state and federal claims for anti-fraud. Common pitfall: issuers focused on federal Reg D compliance forget Texas notice filing, exposing themselves to TSSB enforcement and potential rescission liability for technical violations.