The opinion
R-95
OFFICE OF
THE ATTORNEY GENERAL
PRICE DANIEL
ATTORNEYGENERAL
March 10, 1947
Honorable Paul B. Drown Opinion NO. v-81
Secretary of State
Austin, Texas Re: Whether certain
foreign securities
"registered" with
the Securities and
Exchange Commission
of the United States
are 'on the list ap-
proved by the Securi-
ties and Exchange
Commission", as con-
templated by subdivl-
sion (b) of Sec. 23,
of the Texas Securi-
ties Act, and there-
fore exempt from the
provisions of the Act.
Dear Sip:
You request advice as follows:
"Subdivision (b) of Section 23 of the
Texas Securities Act, under exemptions, pro-
vides as follows:
"'Any security Issued OP guaranteed by
any foreign government with which the United
States is at the time of the sale, or offer
of sale thereof, maintaining diplomatic re-
lations, OP by any State, province OF poli-
tical subdivision thereof having the power
of taxation or assessment, which security is
recognized at the time it is offered for sale
in this State as valid obligation by suah
foreign government OP by such State, province,
or political subdivision thereof issuing the
same, provided however, that such securities
must be on the list approved by the Securities
and Bchange Commission of the United States.'
"We have had several requests for informa-
tion In regard to possible exemptions under
Hon. Paul I-i.
Brown, page 2 - v-81
this provision. The trouble seems to be
that the Securities and Exchange Commis-
sion does not approve an issue but simply
registers the same. It would appear that
the Legislature had in mind sn actual
approval by this Commission before an ex-
emption could be claimed. In the registra-
tion of these Issues by the Securities and
Exchange Commission they always state that
this should not be considered as an approv-
al.
"The question is, shall we consider
a security, which meets all other require-
ments of'this-exemption as exempt when the
same is simply registered with the Securi-
ties anrf.
Exchange Commission and not ap-
proved.
The authority and duties of the Securities
end Exchange Commission as they pertain to the type of
securities inquired about are set out in Title 15, Chap-
ter 2A of the United States Code Annotated. As we con-
strue the provisions of Chapter 2A, the Conznisslonhas
no authority OP duty to 'approve" any of the securities
inquired about. We have also directed an Inquiry to
the Chief Counsel, Corporations Finance Division, Securi-
ties and Exchange Commission, requesting confirmation of
our construction of the Federal Act. The reply received
by this office is to the effect that the Commission
does not and has not approved, nor has it been author-
ized to approve any such securities since the creation
of the Commission.
The only authority granted the Commission by
Federal law, in this connection, Is to allow securities
to be "registered' upon application by the issuer after
submission by, the issuer of extensive data disclosing
matters of Interest to Investors as required by the Act.
Apparently, the only decision required of the Commission
is a determination that the application contains the data
required by law. Ho authority or duty is placed upon the
Commission by the Federal act to pass upon the investment
merits of the securities so "registered , nor upon whether
OP not the securities have investment value.
On the other hand, the Texas Securities Act,
which is published as Art. 600a of Vernon's Civil Statutes
of Texas, contemplates a determination hy the Secretary of
.
1
Eon. Paul H. Brown, page 3 - v-81
State that "the plan of business of the applicant
appears to be fair, just and equitable, and that
the secuPities which it proposes to issue and the
method to be used by it in issuing and disposing
of the same ar8 not su% as will work a fraud upon
the purchasers thereof. This determination is made
in the form Of a "finding". Without a permit, the
sale of such securities is unlavful. Th8 issuance
of the permit contemplated depends upon a favorable
"finding". See Sections 8 and 9 of the Securities
Act.
It Will be noted that the word "approved"
Is also used in paragraph (f) of Sec. 23 of Art.
600a, which exempts securities listed on recognized
and responsible stock exchanges, which exchanges have
been I'approved"by the Secretary of State. Such ap-
proval under paragraph (f) is conditioned that the
exchanges supply to the Secretary OS State facts and
data which "shall b8 found to establish:
'I** *
"(2) That the governing constitution,
by-laws, and/or regulations of such ex-
changes shall require:
"* * *
"3rd. Securities listed and traded in
on such 8XChange to be restricted to those
of ascertained, sound asset and/or income
value."
Thus, consistent with the scheme of the Act,
the "approval" under paragraph (f) contemplates more
than a mere disclosure of true facts as a condition
precedent to engaging in the issuance and Sale of secu-
rities in Texas. As a safeguard to the investor, it
contemplates that qualifications be imposed on the
issuer tending to guarantee value. And 'appPovaln
appears to mean that ,the Secsy of State has ascer-
tained that the saf8gtIardsexist.
It thus appears that "approval" as used in
the Texas seCUPiti8S Act means more than "registration"
under the Federal Act, and no reason appear8 tOnoon-
strue "registration" to mean the same thing as appPo-
val" or to hold that a list of registered securities is
Hon. Paul H. Brown, page 4 - v-81
a 'list approved" b the Conmtissionwithin the mean-
ing of subdivision 9b) of Sec. 23 of the Texas Securi-
tie8 Act.
Since the Securities and Exchange Commission
could haV8 been given powers by Congress of a nature
leading to an approval substantially similar to that
contemplated by the Texas Act, and since such may yet
be done by Congress at its pleasure, it is our opinion
that the exemption contained In paragraph (b) of Sec-
tion 23 of the Texas Securities Act is and will remain
inoperative until actual approval by the Securities
and Exchange Conaaissionof such securities is author-
ized or required by Congressional enactment.
Certain foreign securities "registered"
with the Securities and Exchange COnunissiOn
of the United States are not "on the list
approved by the Securities and Exchange Com-
mission" as contemplated by the exemption
contained in subdivision (b) of Section 23
of the Texas Securities Act. (Art. 60Oa,
V.C.S.)
Very truly yours
ATTORREX GENERAL OF TEXAS
BY
N&d McDaniel
NM:rt;djm Assistant