Unregistered Investment Advisory Activities
Now Subject to the Penal Provisions of the
Texas Securities Act

Background
The penal provisions of the Texas Securities Act ("Act") have historically addressed: (i) fraud and fraudulent and deceitful practices, (ii) knowingly making false or misleading representations in any document filed with the Texas State Securities Board ("Board"), which relates to a securities transaction or security, and/or concerning any registration made under the provisions of the Act, and (iii) the unregistered activities of individuals who engage in unregistered "dealer" and "agent" activities, with respect to distribution of securities. Based on a strict reading of the statute, the Board has determined that unregistered "advisory" activities were not covered by the Act. The 78th Session of the Texas Legislature addressed this apparent weakness by adding a new subsection to Section 29 of the Texas Securities Act to provide for criminal sanctions for the rendering of services as an investment adviser or investment adviser representative without being registered.

Advisory Penal Provisions
The new subsection essentially provides that an individual who renders services as an investment adviser or an investment adviser representative, without being registered as required by the Act, shall be deemed guilty of a felony and on conviction, shall be sentenced to pay a fine of not more than $5,000, imprisonment in the penitentiary for not less than two years or more than ten years, or both. When viewed as a single event, this appears to be just reconciliation by the Board of the criminal exposure for unregistered securities activities, whether for dealer and agent activities or for advisor activities. However, when viewed in light of the current regulatory environment, the amendment is indicative of the continued commitment and focus of the securities regulators to address and motivate compliance with securities laws and regulations by those involved in the industry.