Texas State Securities Board:

An Inventory of State Securities Board Records at the Texas State Archives, 1933-2005

Agency History

The Texas State Securities Board was created by the Texas Securities Act of 1957 (Senate Bill 294, 55th Legislature, Regular Session) to regulate securities sold publicly in Texas. The new agency was composed of the old Securities Divisions of the Texas Secretary of State and the Texas Board of Insurance Commissioners. The regulation of securities involves the registration of stocks, bonds, and other securities sold in the state; the licensing of persons or firms selling securities; the investigation of alleged violations of the act; and the presentation of these violations to county and district attorneys for prosecution. Besides the headquarters in Austin, the Board maintains enforcement field offices in Dallas, Houston, and Lubbock. The mission of the State Securities Board is to protect Texas investors. Consistent with that purpose, the agency seeks to ensure a free and competitive securities market for Texas, increase investor confidence, and thereby encourage the formation of capital and the creation of new jobs in Texas.

In 1923, because Texas had "in recent years been flooded with worthless securities, issued and sold by irresponsible parties to the people of this State," the 38th Legislature (2nd Called Session) passed the "Blue Sky Law" (House Bill 177), regulating the sale of stocks and bonds. The law was to be administered by the newly-created Securities Division of the Secretary of State. The Securities Act of 1935 (House Bill 521, 44th Legislature, Regular Session) replaced the "Blue Sky Law." It also was administered by the Securities Division of the Secretary of State. In 1955, the Securities Division of the Board of Insurance Commissioners was created to regulate insurance securities (Insurance Securities Act of 1955, House Bill 39, 54th Legislature, Regular Session). The Securities Division of the Secretary of State continued to regulate other securities under the new Securities Act of 1955 (Senate Bill 149, 54th Legislature, Regular Session). The 1955 Securities Act provides for the registration of securities offered or sold in Texas and of firms and individuals who sell securities or render investment advice in the state. In certain circumstances, a particular security or transaction may be exempt from the registration requirements of the Act. Whether or not an exemption from the registration provisions is available, the Act prohibits fraud in the offer or sale of securities in Texas. The Act also provides for administrative, civil and criminal remedies and sanctions for violations of its provisions.

A major objective of the State Securities Board is to maintain a proper balance between the competing interests of the promoter and the investor to produce a healthy and productive capital market. Beginning in 2001, the agency has undertaken a series of investor education initiatives to assist all Texans in making informed investment decisions that affect their financial future. This effort has included the dissemination of teaching guides to educators throughout the state, distribution of financial planning guides for Texas families, and issuance of investor alerts and press releases describing recent enforcement actions and steps investors can take to identify and protect themselves from fraudulent schemes.

The Securities Board is governed by a three member board that appoints a securities commissioner to serve as the agency's chief administrative officer and to supervise the daily activities of the staff. Members of the governing board are appointed by the governor with the advice and consent of the Senate for overlapping six year terms. They are non-salaried and may not be licensed to deal in or to sell securities under any provisions of the securities laws. The board members approve and periodically update regulations to ensure that investors remain adequately protected and that unreasonable burdens on legitimate capital raising activities are avoided.

Texas has grown to become one of the major securities markets in the nation and is sought out by national and international securities issuers. As of June 1996, the dollar volume of securities applications processed in Texas exceeded all deposits in Texas banks, savings and loans, savings banks, and credit unions by $29 billion. By June of 1998, the securities applications processed exceeded deposits in these financial institutions by $85 billion. The dollar volume of securities registrations and filings processed in Texas in fiscal 1999 was nearly $308 billion. These filings represent only a fraction of the total volume of securities transactions conducted in the state since most transactions are made pursuant to exemptions from registration set forth in the Act, based on a legislative determination that certain securities and transactions have sufficient safeguards in place to protect the public without the necessity of registration.

As in every year since its creation, the State Securities Board remains a net contributor to the General Revenue Fund. The agency received appropriations of $3,382,268.00 in fiscal year 1999. The agency deposited revenues, primarily from securities and dealer registration fees, totaling $111,186,092.97. The agency maintains a professional staff of attorneys, MBAs, CPAs and other college graduates with accounting or finance training. Approximately 53 percent of the agency staff is comprised of professionals. Each employee is covered by an honesty blanket position bond.

The State Securities Board maintains an Internet web site (http://www.ssb.state.tx.us) that is designed to provide information to the securities industry and the public regarding the operations of the agency. The web site provides the text of the Securities Act, relevant regulations, and forms. Guides are also provided for registration, investor protection, and small businesses seeking to raise capital in Texas.

Divisions of the State Securities Board

Agency objectives and methods have not changed significantly since the creation of the agency in 1957. Through at least the mid-1960s, the Board does not appear to have had any specific divisions, simply the mandate to meet the requirements of the founding legislation. Through 1963 the board processed securities valued at more than $1.5 billion and, at the end of 1963, 7,000 people were licensed to sell securities. By 1970, however, the Board employed 50 people and had split into four divisions: Securities Registration, License, Enforcement, and Administrative Services. It is unclear whether the Commissioner and his staff were a part of Administrative Services or a separate section. By 1981, the Administrative Services Division had disappeared, apparently replaced by the Executive Division, and the License Division had been renamed the Dealer Registration Division. Other divisions remained the same. By at least the mid-1990s, the Executive Division had disappeared, the Staff Services Division had been created, and the General Counsel Division appeared for the first time. The other three divisions remained the same.

Enforcement Division:

The Enforcement Division is charged with detection and prevention of violations of the Act, including illegal sales of unregistered, nonexempt securities, sales of securities by unregistered dealers, and fraud committed in connection with the sale of securities. The Division is also charged with initiating appropriate administrative, civil or criminal action against firms or individuals who violate provisions of the Act.

The Enforcement Division places significant emphasis upon criminal prosecutions of individuals who fraudulently sell securities to Texas residents. Criminal referrals are made to district attorneys and United States attorneys throughout the state and the Division routinely assists prosecutors in the drafting of indictments, presentation of cases to grand juries, and in the trial of criminal cases. The Enforcement Division also assists prosecutors in the preparation of appellate briefs and the presentation of arguments to the appellate courts of Texas. During fiscal year 1999, the Enforcement Division referred cases to prosecutors in Texas which resulted in indictments for 141 transactions involving violations of the Act or related offenses. During the period, there were criminal convictions for 85 transactions. Sentences ranged from probation to 25 years in prison. For a number of years, the Texas State Securities Board has led all other securities regulatory agencies in the United States in the number of criminal proceedings initiated and criminal convictions obtained.

In other matters, the Enforcement Division uses investigative proceedings and administrative actions to detect and prevent violations of the Securities Act. In appropriate instances, the Division refers completed investigations to the Texas Attorney General's Office to obtain civil injunctions to halt illegal sales of securities and to secure restitution for investors. The Division also investigates suspected violations by registered dealers and agents and initiates administrative actions to deny, revoke or suspend the registration of firms or individuals found to have violated the Act or its regulations.

There has been a dramatic increase in the use of the Internet by securities issuers, dealers, and sales agents to widely disseminate information regarding investment opportunities and offer securities directly to the general public. The Enforcement Division, working closely with other state and federal agencies, has established a program to monitor these activities and to initiate enforcement proceedings against those found to be acting in violation of the Act.

During FY 1999, the Division helped secure restitution or rescission of $13,113,022.07 to investors, collected $404,028.55 in administrative sanctions for violations of the Act, and undertook 475 total actions. During the year, Enforcement Division investigations covered fraudulent investment schemes involving the Internet, public offerings of promissory notes, oil and gas ventures, foreign currency trading programs, bank trading schemes, and misuse of customer funds by registered securities dealers and agents. At the close of the fiscal year, the Division employed 12 attorneys, three investigative accountants, one investigator and 11 support personnel. In addition to the Austin office, the Enforcement Division maintains Dallas, Houston, Lubbock and South Texas branch offices.

Inspections and Compliance Division:

The Inspections and Compliance Division conducts periodic inspections of the books and records of registered entities. Primary subjects are dealers and investment advisers who have main offices in Texas and who are not members of the National Association of Securities Dealers; however, all registered firms may be subject to such inspections. At the close of the fiscal year 2003-2004, the Division employed three attorneys, thirteen financial examiners, and two administrative personnel. In addition to the Austin office, the Inspections and Compliance Division maintains personnel in the Dallas and Houston branch offices. During fiscal year 2003-2004, the Division inspected ten percent of those Texas Dealers not regulated by other authorities. The Division's activities resulted in nine referrals to the Administrative Litigation Section for administrative proceedings.

Securities Registration Division:

The Securities Registration Division reviews all applications to register securities for sale in Texas. The primary function of this review is to ensure investor access to full and fair disclosure of all relevant investment information and to ensure that the offering terms are "fair, just and equitable" for the investor in accordance with the criteria established by the Act and Rules. The review is designed to ensure that the promoter and investor will share in the results of the venture, whether the results be profits or losses, to ascertain that prices being asked for the securities are reasonable, that conflicts of interest are minimized, and that promotional expenses are reasonable. However, the approval of a registration application does not constitute a recommendation of the securities being registered, nor does it attempt to determine investment success. The Division also answers questions from the public concerning securities registration requirements, gives the status of securities registration applications, and provides assistance to entrepreneurs and small businesses regarding financing alternatives.

The number of applications received and processed, as well as the dollar volume of applications, result from numerous factors, including, but not limited to, prevailing interest rates, federal tax laws, capital needs of the economy, availability of capital from alternative sources, overall money supply, and investors' perception of the health of the securities markets.

In fiscal year 1969, the division processed $1.6 billion in securities registrations. In fiscal year 1971, it processed $1.2 billion. In fiscal year 1999, the Division processed 26,811 applications representing nearly $308 billion in securities.

Dealer Registration Division (formerly known as the License Division):

The Securities Act requires that, in most instances, firms or individuals selling securities or offering investment advice in Texas must register with the state. These registration functions are administered by the Dealer Registration Division, known as the License Division during the 1970s. The review process for registration includes a thorough examination of each applicant with an emphasis upon the proposed plan of business, financial condition and disciplinary history. Results of the review are sometimes coordinated with the Enforcement Division before a decision is made as to whether registration should be opposed or granted. Dealer and Investment Adviser registrants are required to maintain a registered officer or partner and must register branch offices in Texas locations where business is conducted. A manager must be designated for each such office. In order for the Dealer Registration Division to maintain proper oversight, each registrant is required to timely file amendments to the registration file when an event occurs that causes an answer to a question on the application to become incorrect. This ongoing reporting and review process, with attendant amendments to registration, constitutes a major portion of the workload in the Division. An additional aspect of application processing occurs at the end of the calendar year when dealers, investment advisers and agents file to renew their registration for the following year. Once renewal applications are complete, with requisite filings and fees, new certificates of registration are issued to the dealers and investment advisers and each is furnished a list of their agents who have qualified for renewal of registration. These certificates are required by statute to be posted in the principal place of business and each registered branch office. In fiscal 1999, the State Securities Board registered 162,854 individuals and businesses to sell securities or render investment advice in Texas; the total number of approved and renewed registrations came to 153,180.

The State Securities Board became a participant in the Central Registration Depository system (CRD) in l983. This computer system, developed by the North American Securities Administrators Association and the National Association of Securities Dealers, allows dealers who are registered under federal law to apply for registration of their agents in all desired states via a single form filed at a central location. The computer system makes the application available electronically to every state. The CRD, along with the advent of uniform forms and uniform exams, has created a simplified avenue for dealers seeking registration of their agents. Amendments to dealer registration applications filed via the CRD system are also made available electronically to the state. Dealer and agent fees collected through the CRD are transmitted to the state daily via electronic funds transfer.

The Dealer Registration Division conducts periodic inspections of the books and records of registered entities. Primary subjects are dealers and investment advisers who have main offices in Texas and who are not members of the National Association of Securities Dealers. However, all registrants may be subject to such inspections. Serious violations noted during the course of an inspection are referred to the Enforcement Division for appropriate action. The Division also responds to numerous requests for forms and information regarding registration requirements. Additionally, with increased public awareness, there is a greater demand for information regarding agents and firms registered with the agency.

General Counsel Division:

The Division was created after the mid-1970s to provide formal and informal interpretive advice to help ensure that persons subject to regulation are fairly and adequately apprised of the provisions of the Securities Act and Board rules governing their activities. In fiscal year 1999, the agency issued 11 formal interpretive opinions addressing a wide variety of issues.

The General Counsel Division provides internal legal advice to the Board, Commissioner, and staff regarding correct interpretations of The Securities Act and Board Rules and compliance with other Texas laws, such as the Public Information Act and the Administrative Procedure Act, and certain federal laws, such as the Securities Act of 1933 and the Securities Exchange Act of 1934. The Division also works with the Board, Commissioner, staff and other interested parties in drafting securities-related legislation and Board rules to interpret the Act.

Administrative Services Division:

Since the late 1960s, the Division maintained personnel and accounting records, made purchases, and performed other services necessary for the physical operation of the agency. It is unclear whether the Commissioner and his staff were a part of Administrative Services or operated as a separate section. Sometime during the 1980s or 1990s, the Division seems to have evolved first into the Executive Division, and then into the Staff Services Division.

Executive Division:

The Division may have operated during the 1970s and 1980s. It contained the Commissioner, Deputy Commissioner, Assistant Commission, the Staff Legal Officer, and various support personnel. The members of the division oversaw the activities of the Securities Board and managed personnel, accounting, and all other general staff services. By the mid 1990s, the Division disappeared and seems to have been replaced by the Staff Services Division, which may or may not continue to contain the executive members of the Board.

Staff Services Division:

The Staff Services Division appears to have replaced the Executive Division sometime in the 1980s or early 1990s. It performs accounting, budgeting, inventory, personnel, employee benefits, data processing, and other essential administrative functions of the State Securities Board. The Division is also responsible for the preparation and distribution of reports required by state government. It is unclear whether the Commissioner and his staff are a part of Staff Services or operate as a separate section.

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Scope and Contents of the Records

The State Securities Board, composed of the old Securities Divisions of the Secretary of State and the Board of Insurance Commissioners, was created by the Texas Securities Act of 1957 (Senate Bill 294, 55th Legislature, Regular Session) to regulate securities sold publicly in Texas. The mission of the State Securities Board is to protect Texas investors and its goals are to ensure a free and competitive securities market for Texas, increase investor confidence, and thereby encourage the formation of capital and the creation of new jobs in Texas. The regulation of securities involves the registration of stocks, bonds, and other securities sold in the state; the licensing of persons or firms selling securities; the investigation of alleged violations of the act; and the presentation of these violations to county and district attorneys for prosecution. Types of documents include correspondence and memoranda; press releases; agenda and minutes; requests for, notices of, and summaries of various board actions; notices of hearings and copies of board orders; reports of investigations, hearings, and examinations; legislation, attorney general opinions, and court documents; newspaper clippings, magazine articles, newsletters, prospectuses, and other publications; budget materials; and notes. Records range in date from 1933 to 2005.

Materials cover nearly all aspects of the regulation of securities, both by the Secretary of State (1933-1957) and by the Securities Board (1957-2005). Record series include minutes of meetings held from 1957-1976, 1979-2004; an apparently complete set of files on Securities Board meetings between November 18, 1959 and December 21, 1967, which may have been maintained by Deputy Securities Commissioner Truman G. Holladay; subject files documenting the transition of regulation duties from the Secretary of State to the Securities Board; Enforcement Division and Inspection and Compliance Division board orders and notices of hearings, subjects of which include revocations of exemptions and registrations, denials of applications, and prohibitions against individuals or firms publishing offers or operating in Texas; an apparently complete set of press releases issued by the Securities Board between July 1957 and December 1974 regarding securities registrations in Texas, filed and granted applications for permits to sell securities in Texas, and legal actions against violators of the Securities Act; and, finally, newspaper clippings (January 1973-May 1975) concerning the Sharpstown stock fraud scandal.

To prepare this inventory, the described materials were cursorily reviewed to delineate series, to confirm the accuracy of contents lists, to provide an estimate of dates covered, and to determine record types.

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Restrictions

Restrictions on Access

None.

Restrictions on Use

Most records created by Texas state agencies are not copyrighted and may be freely used in any way. State records also include materials received by, not created by, state agencies. Copyright remains with the creator. The researcher is responsible for complying with U.S. Copyright Law (Title 17 U.S.C.).

Technical Requirements

None.

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Related Material

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Administrative Information

Preferred Citation

(Identify the item and cite the series), Texas State Securities Board records. Archives and Information Services Division, Texas State Library and Archives Commission.

Accession Information

Accession numbers: 1991/155, 1992/038, 1993/105, 1994/054, 1995/050, 1996/040, 1997/061, 1998/059, 1998/196, 1999/044, 1999/098, 2000/098, 2000/141, 2001/080, 2001/088, 2002/095, 2002/108, 2003/069, 2003/107, 2004/078, 2005/106, 2005/115, 2006/041, 2006/043

These records were transferred to the Archives and Information Services Division of the Texas State Library and Archives Commission by the State Securities Board, Enforcement Division, on May 15, 1991; November 25, 1991; January 6, 1993; January 5, 1994; January 10, 1995; January 3, 1996; January 6, 1997; January 9, 1998; June 26, 1998; October 30, 1998; January 26, l999; January 18, 2000; April 21, 2000; March 8, 2001; January 8, 2001; January 23, 2002; February 25, 2002, October 23, 2002; January 24, 2003; January 4, 2004; January 31, 2005; February 28, 2005; and November 2, 2005; and by the Texas Legislative Reference Library on November 3, 2005.

Processing Information

Tony Black, May 1992

Tonia Carlisle, February 1993

Paul Beck, January 1995

Lisa M. Hendricks, January 1996, 1997, 1998, 1999

Nancy Enneking, January 2000, October 2000, August 2001, July 2002

Rebecca Romanchuk, February 2005, November 2005

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Detailed Description of the Records

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