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