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Hon. John Osorlo, Chairman. Board of Insurance Commissioners International ,Life Building Austin, Texas Opini,on No. ww-90

Ret Is a,person, which is for firm, or partnership

part or all the time directly or tnrougn an agent engaged In activities described In Article, 580-2(c) V.C.S., exempt from the dealer iicenslng provi- ,,sions of such Ac.twhen dealing in ~insurance securities as described in Article 580-3(c). Dear Sir: Youhave requested our opinion concerning whether aperson, firm, corporation, or partnership which is for all or a part of the time directly or through an a ent in the activities described In Article 580-2(c f engaged

, Vernon’s Civil Statutes of Texas, denominated “the Insurance Securities Act,” exempt from the dealer licensing provisions of such Act when dealing In insurance securities as described in kticle 580-3(c). Youstate in your opinion request that th-ee security dealers whodonot have licenses under the Insurance Securities Division of the Board but dohave licenses as a dealer through the Securities 6ommissloner of the Secretary of State’s office, have asserted that they are nut required to seaure an insurance dealer’s license for such secondary sales as are set out In Article 580-3(c). They contend that they are acting only as agent for vendor or seller under Section 3(c) and therefore no insurance securities dealer’s license is required of them as such agent.

4rticle 5,9:2(c), defines a ttdealer18: “The term ‘dealer I shall include every person or company, other, than ,a salesman, who engages in this state, either for ,a11 or part of his or fts time, directly or through an agent, in selling,Hen. John Osorlo, page 2 (W-90)

offering for sale or delivery or soliciting subscriptfons to or orders for, or undertaking to dispose of, or to invite offers for, or rendering services as an investment adviser, or dealing in any other manner in any security or securities within this state. Anyissuer other than a registered dealer, of a security or securities, who, directly or through, any person or company, other than, aregistered dealer, offers for sale, sells or makes sales of its ownsecurity or securities shall be deemed a dealer and shall be required to comply with the provisions hereof; provided, however9 this Section or provision shall not apply to such Issuer when such security or securities are offered for sale or sold either to aregistered dealer or only by or through a registered dealer acting as fiscal agent for the issuer; and provided further, this Section or provision shall not apply to such issuer if the transaction is within the exemptions contained in the provisions of Section 3 of this Act0” The initial paragraph of subsection 3of Article 580providesl

“Except as hereinafter in this Act specifically provided the provisions of this Act shall not apply co the sale of any security when made in any of the following transactions and ‘under any of the following oonditions and the company or person engaged therein sha 1not 1 be deemed a dealer within the meaning of this Act; that is to say, the provisions of this Act shall not apply to any sale, offer for sale? solicitation, subscription, dealing in or delivery of any security under any of the following transaetfcns or conditionsa ”s
. .n Amongst the transactions exempted by subsection 3 is the transaction set forth in sub-paragraph (c) thereof, which states8

"(~1 Sales of securities made by or In beha&c’ a ,vendor, whather br na

in the ordinary course of bonafide personal’lnvestment ofj&e aeru of suc&Hon. John Osorio, page 3 (~~-90);

vendor, or change in such investment, if such vendor Is not otherwise ,engaged either permanently or temporarily in selling securities; provided, that in no’event shall such sales or offering be exempt from the provisions of this Actwhen made or intended bP mdor or his m, for the benefit, either directly or indirectly, of any aompany or corporation except the individual vendor (other than ausual commission to said agent) ;

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. .” The issue, then,, is whether a dealer whomakes a sale for a vendor, which sale would be exempt under the provisions of subsection 3 of Article 580, would himself be exempt from obtaining a license under the Insurance Securities Act of such dealer engages only in transactions exempt under Article 580-3(c).

The Insurance Securities Act Is su stantially identical to the language of the Securities Act.!i The language of both acts was derived from &ticle 6OOa, V.C.S., popularly known as the “Blue Sky Law,” as amended. Accordingly, cases construing the provisions of old, Article 600a will be controlling where applicable.

In construing Article 600a, Subsection 3(c) $which is substantially identical tp Article 580-3(c), the courts have repeatedly held that a dealer engaged in such atransastion must obtain a dealer’s license. In tier v.Hancock, the court stated:

‘IWethink involved in that language is the construction that Section 3(c) applies to the

A,/Article 579-l through Article 579-42. &’ 14gES.W.2d 239 (Tex.Civ.App. 1941, error dism.) This was a suit for a’brokerts commission for the sale of an oil payment by the plaintiff. Defendant defended onthe basis that plaintiff had no dealer’s license while plaintiff claimed to be exempt from the provisions of the Securities Act requi.ring a dealer Is license byvirtue of Section 3(c) gand was therefore entitled to recover, notwithstanding the fact that he had no dealer’s license.. . ’

Hon. John Osorio, page 4 (WV-90)

owner of the seaur,ity; that he is not a dealer if he sells for the purposes named, either in person’or through another apersonally owned seaurity-, provided, of course, he is not in that general business. The ,sale or,contract of sale made under such circumstances, whether by the owner or another, is In all respects legal and enforceable. It is not held, ‘however, wethink, that if the one effecting the sale for such avendor is an unlicensed dealer under the Securities hct that he would be entitled to compensation :‘or his services.11

,~‘ases
..‘3 This ruling has been adhered to in anwnber of Adollttedly there have been several amendments to hrcicle 600a, Section 3(c) since the time of3hese decisions. (The additional language added by‘amendment is underlined in ihe excerpt 02’si.zbsection 3(a) set, out’ above.)

It ~:anreadily be seen that the amendments are not substantial and donot materially change the lan uage of the act with respect to the issue raised. Section 3 c) t of Artis.;le 600a certainly contemplated sales by agents, for howelse ;o,old a sale Abe

made on behalf of a vendor except by another person? The Insuranae Seourlties Pot hae no proVislC% exsllipting 18dea.Lers”licensed bythe Securities Commissioner of cae Secretary of State’s office fromobtaining a license purs’.iant:to the l’Insurance Securitiee Attn. Therefore the dealdtx in, question are not exempted !Yom,the Act.

,A’&)&Jr v. c rrr.‘r.r re%. n.r.e. Civ.App. l.9+5 err0 3~77(Tex.Sup.&. g;W.2d 197 (Tex. 1953)i-. _

Hon. John Osorio, page 5’

. m-90)

SUMMURY Aperson, firm, which is for part or or corporation or partnership all of the time directly or tnrougn an a ent engaged In activities described. in Article 50-2(c), V.C.S., is not exempt from

% the dealer’s licensing provisions of such Actwhen dealing in insurance securities as described in Article 580-3(c). Very truly yoursr

WILLWILSON Attorney Gen.eral

Wallace P. Finfrock Assistant WPF:wb APPROVED: OPINIONCOMMITTEE H. Grady Chandler

Chairman