SEC/FINRA Compliance in Texas: Federal Rules + Texas State Securities Board
Texas is home to a large financial services sector centered on Houston and Dallas, with particularly strong investment advisory activity in energy sector securities. The Texas State Securities Board (TSSB) is one of the most active state securities regulators in the country, aggressively pursuing unregistered securities offerings, investment fraud, and broker-dealer violations. Texas broker-dealers and investment advisors must comply with both federal SEC/FINRA requirements and Texas Securities Act obligations.
Enforces Texas Securities Act; registers and examines TX-registered investment advisors and broker-dealers; investigates securities fraud; coordinates with SEC and FINRA on joint enforcement
State Penalties: Texas Securities Act violations: civil penalties up to $10,000 per violation; criminal penalties up to $10,000 and 10 years imprisonment for felony violations. TSSB can revoke registrations and bar individuals.
Federal Penalties: SEC: disgorgement, civil penalties up to $1M+ per violation; criminal securities fraud up to 25 years. FINRA: fines up to $385,000 per violation plus suspension/bar
How Federal + Texas Law Overlap
SEC and FINRA govern federally registered broker-dealers and investment advisors. TSSB regulates TX-registered investment advisors (AUM below federal threshold) and enforces the Texas Securities Act for state securities law violations. Both levels apply simultaneously to Texas financial firms.
Additional Texas Requirements Beyond Federal Law
- Texas Securities Act (Tex. Rev. Civ. Stat. Art. 581) — registration requirements, anti-fraud provisions, and TSSB enforcement authority
- Texas Investment Adviser Act — state registration and compliance requirements for TX-registered investment advisors
- TSSB exam program: all TX-registered investment advisors are subject to periodic TSSB compliance examinations
- Texas Energy Securities: oil/gas investment offerings must comply with Texas Securities Act registration or exemption requirements
- Texas 'merit review' securities law — TSSB can deny securities registration on merit grounds (unlike federal law, which only reviews disclosure adequacy)
- TSSB annual investor alert publications — warn Texans about enforcement trends; current priorities include crypto, oil/gas fraud, and senior financial exploitation
Key Compliance Requirements for Texas
- State registration with TSSB if investment advisor AUM is below the SEC registration threshold
- Texas Securities Act compliance for all Texas securities offerings — including oil/gas investment partnerships
- TSSB merit review compliance — Texas's securities registration standard is stricter than federal disclosure-only review
- Regulation Best Interest: document best-interest analysis for all retail customer recommendations
- Form CRS: deliver to all retail investors before or at account opening
- Reg S-P WISP: implement written information security program meeting 2024 amended requirements
Common Violations in Texas
- Unregistered oil/gas securities offerings — Texas's energy sector creates frequent unregistered offering violations
- Failure to register as an investment advisor with TSSB when required by Texas law
- Senior investor exploitation — TSSB's most active enforcement priority in Texas
- Reg BI documentation failures for Texas retail investors
- Off-channel communications archiving failures at Texas broker-dealers
Recent SEC/FINRA Enforcement in Texas
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Who regulates investment advisors in Texas?
Investment advisors in Texas are regulated at two levels. Those with AUM of $100M or more register with the SEC. Advisors below the federal threshold register with the Texas State Securities Board (TSSB). TSSB conducts periodic examinations of state-registered advisors and enforces the Texas Investment Adviser Act alongside the Texas Securities Act.
What is Texas's 'merit review' securities standard?
Texas's securities law allows the TSSB to review securities offerings on their merits — not just the adequacy of disclosures. TSSB can deny registration of a securities offering if it finds the terms are unfair or unreasonable to investors. This is stricter than the federal SEC standard, which only reviews whether disclosures are adequate. Texas issuers must satisfy both federal disclosure requirements and TSSB merit review.
What SEC/FINRA requirements apply to Texas oil/gas investment offerings?
Oil/gas investment partnerships and programs in Texas must comply with both federal and state securities laws. Offerings registered under SEC Regulation D (private placements) must file Texas notice filings with TSSB. Registered public offerings must satisfy both SEC registration and TSSB merit review. TSSB actively examines oil/gas securities for fraud — it's the agency's highest-enforcement category.
What is the most common FINRA/SEC violation in Texas?
Unregistered securities offerings (particularly oil/gas investments) and investment advisor registration failures are the most common violations in Texas. TSSB also reports senior financial exploitation as a top enforcement priority — investment schemes targeting Texas retirees through unsolicited sales calls are frequently prosecuted. Reg BI violations are increasingly common in FINRA and TSSB joint examinations.
Who enforces securities law in Texas?
The TSSB enforces the Texas Securities Act for state-level violations. The SEC enforces federal securities laws including the Investment Advisers Act, Exchange Act, and Reg BI. FINRA enforces broker-dealer conduct rules. The Texas AG can prosecute criminal securities fraud. All four agencies have overlapping jurisdiction and coordinate on major enforcement cases.