Under escrow provisions, the administrator may require the security to be placed in escrow if the security was issued within the past three years to whom?

• A. A promoter
• B. A random investor
• C. An employee
• D. A public charity

Answer: (A)

Escrow provisions are used to curb sudden liquidity from insiders after a securities issue. When a security was issued within the past three years to a promoter, regulators may require those shares to be placed in escrow to restrict immediate sale and align the promoter’s incentives with the company’s long-term prospects. This helps protect other investors from a large, quick liquidation by someone with significant influence over the issuer. The rule is targeted at promoters because of their potential control and motivation to cash out early; a random investor or a charity doesn’t present the same risk, and employees typically have separate vesting or restricted-share rules rather than this specific escrow provision.