Securities industry

Securities registration and exemptions

The Oregon securities law regulates the offer and sale of securities (investments). The law was enacted to protect investors and to prevent fraud.

Definition of a security

The term security under the Oregon securities law is defined broadly and can include a wide variety of financing arrangements. A security exists whenever a person (the investor) gives money or money’s worth to another person (the entrepreneur) with the expectation that a profit will be made through the efforts of the entrepreneur, or a third party. 

Common examples of a security include:

  • Stock in a corporation 
  • Partnership interest in a limited partnership 
  • U.S. savings bonds

Other financing arrangements, such as real estate paper, promissory notes, royalties, joint ventures, options, leasehold interests, and others could involve a security in certain circumstances. Any time you arrange to use someone else’s money, and your expertise and management to generate a gain or profit for an investor, you are probably selling a security.

Preventing securities fraud

To combat fraud, the law requires you disclose all material facts regarding an investment in a security before its sale. Material facts can include: 

  • A description of the company’s properties and business
  • A description of the securities being offered for sale
  • Information about management of the company
  • Material risks related to an investment in the company

Typically, these disclosures are included in a disclosure document, such as a prospectus or a private placement memorandum.

Securities registration

Anyone wanting to offer and sell securities must register them with the division, unless they qualify for an exemption to the registration requirements, or the issuer can instead file notice of the offering with the division and pay a fee.

The registration requirements are in place to ensure that the offering’s terms are “fair, just, and equitable” to Oregon residents, and to ensure investors are not investing in companies that are insolvent or in unsound financial condition. 

There are various methods for registering securities depending on, among other things: 

  • The size of the offering 
  • The nature of the issuer 
  • The nature of the investor 
  • How the issuer intends to sell the security. 

Generally, an issuer must submit the disclosure materials it intends to provide to investors, financial statements that have been audited by an accountant, a salesperson licensing application, and fees. The fees can range from $200 to $1,500, depending upon the offering’s size. The filing and fee requirements are under Oregon Administrative Rules 441-065-0001 to 441-065-0270.

A division registration analyst will examine the application to determine whether the offering would be “fair, just, and equitable” to Oregon residents, and that the issuer is not in unsound financial condition. This process is known as a “merit review.”

Upon completion of the initial review, the registration analyst may make comments to the application or request changes. When the review is complete, the division will issue an Order of Registration and the issuer can start offering and selling securities.

Although “merit review” can be an intensive process, it is important to note that the registration analyst does not review the application to ensure the disclosures are true, complete, and not misleading. The person selling the securities has the burden to meet these requirements.

Exemptions

As noted, the Oregon securities law exempts certain securities and securities transactions from the securities registration requirements. This can include private offerings to a limited number of people, private offerings to high net-worth individuals, or highly sophisticated purchasers.

Keep in mind that the Securities and Exchange Commission and other states’ securities regulators also regulate securities offerings and sales. These jurisdictions have similar requirements to Oregon’s, but every time and anywhere you offer and sell a security, you must be aware of the federal securities laws, and the states' securities laws.

You should always consult your business advisor (accountant, attorney, etc.), or contact the appropriate state agency before you offer and sell securities as all securities laws have significant civil and criminal penalties for their violation. Remember, ask before you offer and sell securities. Your advisors or state agencies should be able to give you guidance regarding the securities registration requirements, disclosure requirements, and what registration exemptions may be available. The best advice is to ask early and often about the application of the securities laws to your business activities.