- Under the Uniform Securities Act, in which of the following circumstances may the Administrator deny, suspend, or revoke a registration?
Answer: the Administrator finds that the action is in the public interest and that the registrant has committed a willful violation of the Act or of a rule or order under it.
Uniform Securities Act § 204. Denial, suspension, or revocation requires both a finding that the action is in the public interest and a statutory ground, such as a willful violation of the Act or of a rule or order under it; the correct statement identifies that two-part test. Lack of experience alone is never sufficient when the person is otherwise qualified by training or knowledge. Insolvency is a statutory ground only for the registrant's own insolvency, not the insolvency of a parent company. Failure to pay a required fee supports only a denial, vacated once the fee is paid; it does not support suspension.
An Administrator issued a written order requiring a state-registered investment adviser to stop accepting new client funds. The adviser was on an extended trip, did not see the order, and continued accepting new accounts for two weeks. The state charges the adviser with a criminal violation of the order, and the adviser proves that he had no knowledge of the order.
Under the Uniform Securities Act, which penalty, if any, may be imposed? Answer: A fine of up to $5,000 may be imposed, but the adviser may not be imprisoned.
Uniform Securities Act § 409 authorizes a fine and imprisonment for a willful violation, but a person who proves he had no knowledge of a rule or order may not be imprisoned for violating it; a fine is still possible. The no-knowledge adviser therefore can be fined but not imprisoned. Treating lack of willfulness as a complete bar, or imposing imprisonment, ignores that protection.
An agent of a state-registered broker-dealer sold unregistered, nonexempt securities to a customer in violation of the Uniform Securities Act. The agent sold the securities away from the firm: the sale was not recorded on the broker-dealer's books, and the broker-dealer took no part in it. The customer sues the broker-dealer for rescission as the agent's employer and control person.
Which fact, if proven by the broker-dealer, would allow it to avoid liability under the Act? Answer: The broker-dealer did not know of, and could not reasonably have known of, the agent's conduct.
Uniform Securities Act § 410(c) makes every person who directly or indirectly controls a seller liable under § 410(a), and every employee, broker-dealer or agent who materially aids the sale, jointly and severally liable with the seller, unless that person proves that he did not know, and in the exercise of reasonable care could not have known, of the facts giving rise to the liability. The agent sold away from the firm, off its books, so the broker-dealer is not the seller; it is sued as the agent's employer and control person, and it avoids liability by proving that it did not know and could not reasonably have known of the agent's conduct. A general instruction to obey the securities laws does not establish that defense, receiving no part of the commission is not a defense because control-person liability does not depend on sharing in the sale, and the Act requires no pre-suit notice to the broker-dealer.
A state Administrator has asked a state-registered investment adviser to file copies of all advertisements the adviser uses, before the advertisements are sent to clients. The advertisements relate only to shares of a registered open-end investment company. The adviser objects.
Under the Uniform Securities Act, may the Administrator require the filing? Answer: No, because the securities advertised are federal covered securities, which are outside the filing authority.
Shares of a registered open-end investment company are federal covered securities. Uniform Securities Act § 403 permits the Administrator to require filing of advertising and sales literature, but not where the security or transaction is exempt or is a federal covered security. The adviser's state registration and the number of retail clients do not change that result, and the Administrator does have authority over adviser advertising in other cases.
Thirty months ago, an investor purchased a security from an agent of a state-registered broker-dealer. The agent made a material misrepresentation in connection with the sale, and the investor discovered the misrepresentation twenty-five months ago. The investor still owns the security and has not filed suit.
Under the Uniform Securities Act, which statement is correct about the investor's civil remedy? Answer: The investor's claim is barred because the two-year period measured from discovery expired before the three-year period measured from the sale.
Uniform Securities Act § 410. A buyer's civil action must be brought within three years of the sale or two years of discovery of the facts constituting the violation, whichever period expires first. The purchase occurred thirty months ago, so the three-year sale-based deadline is still about six months away. The misrepresentation was discovered twenty-five months ago, so the two-year discovery-based deadline expired one month ago. Because the earlier deadline has already passed, the claim is barred even though the sale-based deadline has not yet run. The statement that the two-year discovery period expired before the three-year sale period is correct. The statement that the three-year sale period expired first reverses the dates: only thirty months have passed since the sale, which is less than the three-year period. The statement that the investor may sue because the sale period remains open ignores the earlier discovery deadline, which has already run; the tender-and-recovery remedy it describes is accurate under § 410 but is unavailable once the limitation period has expired. The statement that the two-year discovery period replaces the three-year sale period misstates the rule: the two periods are alternatives, and the action must be brought by the earlier of the two deadlines, not by whichever deadline the plaintiff prefers.
- Under the Uniform Securities Act, which of the following statements regarding liability of control persons and persons who materially aid a violation is true?
Answer: A person who materially aids a violation is jointly and severally liable unless the person did not know, and in the exercise of reasonable care could not have known, of the facts giving rise to the liability.
Uniform Securities Act § 410. Control persons and persons who materially aid a violation are jointly and severally liable unless they did not know, and in the exercise of reasonable care could not have known, of the facts giving rise to the liability. Control-person liability does not require the control person to have received compensation or to have materially aided the violation. Liability does not depend on a willful violation or on a criminal conviction of the violator. The good-faith and no-inducement defense is the standard under Section 20(a) of the Securities Exchange Act of 1934, not the defense the Uniform Securities Act provides.
An Administrator is considering whether to revoke the registration of a state-registered investment adviser representative and has already found that revocation would be in the public interest.
Which additional finding would permit the Administrator to revoke the registration under the Uniform Securities Act? Answer: The representative willfully violated the state's antifraud provision in connection with a client account.
Under Uniform Securities Act § 204, denial, suspension, or revocation requires both a public-interest finding and a statutory ground. A willful violation of the Act is a statutory ground, so the Administrator may revoke. The 12-year-old felony falls outside the 10-year statutory lookback; lack of experience alone is not disqualifying if the person is otherwise qualified by training or knowledge; and failure to pay a fee supports only denial, vacated on payment, not revocation.
On March 1, while the Administrator was informally reviewing a complaint against a state-registered investment adviser representative, the representative filed a withdrawal of registration. No formal proceeding was pending on March 1. On March 20, the Administrator obtained evidence of a willful violation and instituted a revocation proceeding.
Which statement is correct under the Uniform Securities Act? Answer: The withdrawal would become effective 30 days after filing, but the proceeding begun on March 20 stops it from becoming effective.
Under Uniform Securities Act § 204(e), a withdrawal becomes effective 30 days after filing unless a revocation or suspension proceeding is pending or is instituted within that period. The March 20 proceeding was begun before the 30-day period ended, so the withdrawal did not take effect and the registration remains subject to revocation. Immediate effectiveness, a requirement of a pending proceeding on the filing date, and a bar on revocation after withdrawal are all incorrect.
Four years ago, a state-registered investment adviser charged a client a $10,000 fee for advice based on a false material fact. The client lost $60,000 after following the advice. The client did not discover the misstatement until last month and now sues the adviser under the Uniform Securities Act.
Which statement is correct regarding the client's action? Answer: The client's action is time-barred because more than three years have passed since the advice, even though the suit is within two years of discovery.
Under Uniform Securities Act § 410, an advisory client may recover the fee charged and any loss caused by the advice, plus interest, costs, and reasonable attorneys' fees, less income received. Suit must be brought within three years of the advice or two years of discovery, whichever is first. Here the three-year deadline expired before the client discovered the misstatement, so the later two-year discovery period cannot revive the claim; the action is time-barred. The full fee-and-loss recovery is available only to a timely claimant; the Act does not limit recovery to the loss, and it does not require an advisory client to tender an investment before suing.
- Under the Uniform Securities Act, which of the following statements regarding the Administrator's cease-and-desist authority is true?
Answer: A cease-and-desist order may be issued with or without a prior hearing, and the Administrator may also seek a court injunction against a violator.
Uniform Securities Act § 408. The Administrator may issue a cease-and-desist order with or without a prior hearing and may also seek a court injunction. The statement that a hearingless cease-and-desist order requires a prior court injunction is wrong: the injunctive remedy is separate and not a prerequisite. The statement that court approval is required before the order becomes final is wrong: a court may be used to enforce an order, but approval is not required for the order's effectiveness. The statement that the respondent's consent is required is wrong: the Administrator may issue the order without consent, and waiver of a hearing is not a condition for the order to take effect.
Based on evidence that a state-registered agent was misappropriating customer funds, the Administrator summarily suspended the agent's registration without prior notice or a hearing. The agent submitted a written request for a hearing.
Under the Uniform Securities Act, which statement is correct? Answer: The Administrator must set a hearing within 15 days of the agent's written request for a hearing.
Under Uniform Securities Act § 204, the Administrator may summarily postpone or suspend a registration pending a hearing when the public interest requires, and must set a hearing within 15 days of a written request. Prior notice and a hearing are not required for the summary order, the request does not stay the suspension, and the 60-day period is not the Act's deadline.
- Under the Uniform Securities Act, which of the following statements regarding criminal liability is true?
Answer: A person who willfully violates the Act is subject to a fine of up to $5,000, imprisonment of up to three years, or both; a violator of a rule or order may not be imprisoned if the person proves no knowledge of it.
Uniform Securities Act § 409. A willful violation of the Act is punishable by a fine of up to $5,000, imprisonment of up to three years, or both. A person who violates a rule or order may not be imprisoned if the person proves he or she had no knowledge of the rule or order, although a fine may still be imposed. The statement using a $10,000 fine, a five-year maximum, and mandatory imprisonment for a second violation misstates the statutory penalties. The statement that no fine may be imposed when the violator had no knowledge is wrong; only imprisonment is barred. Willfulness does not require proof of an intent to defraud an investor.
- Under the Uniform Securities Act, which of the following statements regarding a registrant's withdrawal from registration is true?
Answer: Withdrawal becomes effective after 30 days unless the Administrator sets an earlier date or a proceeding is pending or starts within that period; a revocation or suspension proceeding may be commenced within one year thereafter.
Uniform Securities Act § 204. A withdrawal becomes effective 30 days after the Administrator receives it unless the Administrator sets an earlier date or a proceeding is pending or is started within that period, and the Administrator may still commence a revocation or suspension proceeding within one year after the withdrawal takes effect. Immediate effectiveness on receipt is wrong. The Administrator's post-withdrawal authority is not limited to the pendency of the withdrawal application. December 31 is the annual expiration date for registrations, not a withdrawal date, and proceedings may not be commenced at any time after it. Written approval by the Administrator is not required for a withdrawal, and approval would not bar a later revocation or suspension proceeding.
- Under the Uniform Securities Act, which of the following statements regarding judicial review of the Administrator's orders is true?
Answer: An aggrieved person must seek judicial review within 60 days after the Administrator enters the order.
Uniform Securities Act § 411. A person aggrieved by a final order of the Administrator must seek judicial review within 60 days of entry of the order. The 30-day statement is wrong: 30 days is the period for a withdrawal of registration to take effect, not the judicial review window. The one-year statement is wrong: the review window is 60 days, and written findings of fact do not lengthen it. Review is not limited to denial, suspension, or revocation orders; a cease-and-desist order is also a reviewable final order.
- Under the Uniform Securities Act, a purchaser who bought a security in reliance on a fraudulent act must bring a civil action for rescission or damages:
Answer: within three years of the sale or two years of discovery, whichever is first.
Uniform Securities Act § 410. A purchaser must bring suit within three years of the sale or two years of discovery of the fraudulent facts, whichever is first; the earlier of the two deadlines controls. The statement that suit may be brought within two years of discovery regardless of the sale date ignores the three-year cap running from the sale, and the statement that suit may be brought within three years of the sale regardless of discovery ignores the two-year discovery cap. The statement that suit may be brought within two years of the sale or three years of discovery swaps the statutory periods; the Act gives three years from the sale and two years from discovery.
