Texas Securities Act

The Texas Securities Act (TSA) is the principal Texas statutory framework for securities regulation. Codified at Tex. Gov't Code §§ 4001.001-4008.105 (recodified from former Tex. Rev. Civ. Stat. art. 581-1 et seq. by legislation enacted in 2019 and effective January 1, 2022), 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 under § 4003.101, available when a registration statement for the same offering has been filed with the SEC, and used mainly for registered offerings that are not exchange-listed covered securities; (2) qualification by permit under § 4003.001, with substantive review by the Securities Commissioner; (3) notification under § 4003.051, available to issuers with at least three years of continuous operation and a specified earnings record. 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 limited offerings, § 4005.012 (no public solicitation, and either no more than 35 security holders after the sale or no more than 15 purchasers in 12 months); (3) institutional investor sales, § 4005.011; (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 its own conditions.

NSMIA preemption framework

The National Securities Markets Improvement Act of 1996 (NSMIA) preempts state registration for "covered securities," including: (1) listed securities, meaning securities listed or authorized for listing on a national securities exchange, and equal or senior securities of the same issuer; (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) electronic filing through the EFD system; (4) due no later than 15 days after the first sale in Texas; (5) amendments for material changes. Regulation A Tier 2 and Regulation Crowdfunding offerings have their own Texas notice procedures. Failure to make the notice filing does not affect the federal exemption, but it leaves the issuer out of compliance with the TSSB rule.

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. An issuer selling its own securities is deemed a dealer under § 4001.056(b) unless it sells through a registered dealer or the transaction is exempt under Subchapter A of Chapter 4005.

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) limitations of three years from the sale for registration claims, and for untruth or omission claims three years from discovery (or when discovery should have been made) but no more than five years from the sale, with shorter deadlines after a qualifying rescission offer; (4) strict liability for unregistered offerings (no scienter required); (5) costs, and reasonable attorney's fees if the court finds the recovery equitable. 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.