- Under the Uniform Securities Act, which of the following statements is true regarding the Administrator's authority over a federal covered investment adviser that does business in the state?
Answer: The Administrator may bring an antifraud enforcement action against the adviser for fraudulent conduct involving clients who reside in the state.
Uniform Securities Act §§ 101 and 102 apply the antifraud provisions to a federal covered investment adviser's conduct in the state, and the adviser does not register with the state but files a notice and pays a fee before doing business in the state. The Administrator may therefore investigate and bring enforcement actions against the adviser for fraud. The statement that the Administrator may bring an antifraud enforcement action against the adviser for fraudulent conduct involving state clients is correct. The statement that the Administrator may require the adviser to register is wrong because only notice filing may be required of a federal covered adviser. The statement that the SEC has exclusive authority is wrong because state antifraud enforcement is concurrent with SEC authority. The statement that the adviser's individual representatives may be required to register without a place of business in the state is wrong because the state may require IAR registration only for individuals with a place of business in the state.
After receiving complaints from several clients, the Administrator of State X issued a cease-and-desist order against a state-registered investment adviser, finding that the adviser made material misrepresentations to clients in violation of the antifraud provisions. The Administrator did not hold a hearing before issuing the order. The adviser objects, claiming the order is procedurally invalid.
Under the Uniform Securities Act, which statement is correct? Answer: The order is valid, and the adviser may seek judicial review within 60 days after the order is issued.
Uniform Securities Act §§ 408 and 411. The Administrator may issue a cease-and-desist order with or without a prior hearing, so the lack of a hearing does not invalidate the order. A person aggrieved by an order may obtain judicial review within 60 days of the order. The hearing-required option is wrong because § 408 expressly permits a cease-and-desist order without a prior hearing. The continue-until-injunction option is wrong because the order is immediately effective; the Administrator's separate power to seek a court injunction does not suspend it. The injunction-precondition option is wrong because the cease-and-desist remedy is administrative and does not require a prior court proceeding.
In November 2024, an agent of a broker-dealer registered in State X sold shares of a private issuer to a State X investor in a transaction that was exempt from registration. The sale was induced by the agent's fraudulent misstatement of a material fact. The investor, who still owns the security, discovered the fraud in June 2026. In December 2026, the investor received from the broker-dealer a written offer to rescind the sale by refunding the full purchase price plus interest, less any income received. The investor did not respond and filed suit in February 2027.
Under the Uniform Securities Act, which statement is correct concerning the investor's suit? Answer: The investor is barred because the written rescission offer was not accepted within 30 days of receipt.
Uniform Securities Act § 410. The suit falls within both the three-year-from-sale and two-year-from-discovery periods, but a buyer who still owns the security and receives a written rescission offer that satisfies the statutory terms may not sue if the offer is not accepted within 30 days of receipt. The offer the investor received in December 2026 — full consideration plus interest, less income — meets those terms, and the investor did not accept it, so the suit is barred. The first two options disregard the rescission-offer bar. The option stating the investor is barred for failing to file suit within 30 days misstates the rule: the 30-day period is for accepting the offer, not for filing suit.
In January 2023, an agent of a broker-dealer registered in State X sold an unregistered security to a State X investor in a transaction that was exempt from registration. The sale was induced by the agent's fraudulent misrepresentation, which the investor did not discover until March 2026. No rescission offer was made. In July 2026, while still owning the security, the investor filed suit under the Uniform Securities Act.
Which statement is correct concerning the investor's suit? Answer: The suit is barred because more than three years elapsed between the sale and the filing of the suit.
Uniform Securities Act § 410. A civil action must be brought within three years of the sale or within two years of discovering the fraud, whichever period first expires. The three-year sale period ended in January 2026; the two-year discovery period would not end until March 2028, but the earlier deadline governs, so the July 2026 suit is barred. The two-years-from-discovery option ignores the three-year cap, which expired before the suit was filed. The option claiming that the delayed discovery itself bars the suit misstates the rule: discovery starts its own two-year period rather than acting as a bar. The option stating the suit was timely because it was filed within three years of the sale is wrong because July 2026 is after the three-year period that ended in January 2026.
An IAR of a state-registered investment adviser told a client that a certain issuer had a binding federal government contract guaranteeing its revenue, a statement the IAR knew was false. Relying on the advice, the client paid the adviser a $1,500 fee and invested $20,000 in the issuer's common stock. The shares fell in value, and the client sold them for $14,000 after learning the statement was false. The client sues the adviser under the Uniform Securities Act.
Under the Uniform Securities Act, what may the client recover? Answer: The $1,500 fee plus the $6,000 loss, with interest, costs and reasonable attorney's fees, less any income received.
Uniform Securities Act § 410. A client defrauded by an investment adviser recovers the advisory fee plus any loss caused by the advice, together with interest, costs and reasonable attorney's fees, less income received. The loss here is $6,000, the difference between the $20,000 cost and the $14,000 sale proceeds, so the client recovers $7,500 plus the statutory additions. The fee-only option is wrong because the loss caused by the fraudulent advice is also recoverable. The purchase-price option applies the securities-buyer rescission measure to an advisory claim and is wrong because the advisory remedy is the fee plus the loss caused by the advice, not a return of the investment. The loss-only option is wrong because the client also recovers the fee.
- Under the Uniform Securities Act, which of the following statements is true regarding criminal liability for violations of the Act and of the Administrator's rules and orders?
Answer: A willful violation of the Act is punishable by a fine of up to $5,000, imprisonment for up to three years, or both, but a person who proves ignorance of a rule or order may not be imprisoned.
Uniform Securities Act § 409 makes a willful violation of the Act a crime punishable by a fine of up to $5,000, imprisonment for up to three years, or both. A person who proves that he or she did not know of a violated rule or order may not be imprisoned for that violation, although a fine remains possible. The statement that a willful violation of the Act is punishable by a fine of up to $5,000, imprisonment for up to three years, or both, and that a person who proves ignorance of a rule or order may not be imprisoned is correct. The statement using $10,000 and five years is wrong because those are not the Act's figures. The statement that a person who proves ignorance of a rule or order may not be fined is wrong because the Act bars only imprisonment in that circumstance, not a fine. The statement that a non-willful violation of a rule or order carries the same criminal penalties is wrong because criminal liability under § 409 requires a willful violation.
An IAR of a state-registered investment adviser fraudulently induced a client to invest $30,000 in a private real estate venture, and the client lost the entire investment. The IAR's supervisor, the adviser's managing partner, had no actual knowledge of the fraud. The IAR's client file contained clear warnings of the scheme, and a reasonable supervisory review would have uncovered it, but the managing partner never reviewed the file. The client sues the adviser and the managing partner under the Uniform Securities Act.
Under the Uniform Securities Act, which statement is correct concerning the managing partner's liability? Answer: The managing partner is jointly liable because reasonable supervision would have uncovered the fraud, negating the knowledge defense.
Uniform Securities Act § 410. Control persons and those who materially aid the violator are jointly liable with the primary violator unless they did not know, and in the exercise of reasonable care could not have known, of the facts giving rise to the liability. The managing partner's lack of actual knowledge is not enough because a reasonable review of the IAR's client file would have uncovered the fraud. The no-actual-knowledge option is wrong because it ignores the reasonable-care prong of the defense. The judgment-first option is wrong because control-person liability is joint; no exhaustion of remedies against the IAR is required. The limited-liability option is wrong because a control person is liable to the same extent as the primary violator, not merely for fees or commissions earned.
- Under the Uniform Securities Act, which of the following statements is true regarding when an offer of a security is considered made in the Administrator's state?
Answer: An offer that originates from a person located in the state is made in the state even if it is directed only to recipients who live outside the state.
Uniform Securities Act § 414 provides that an offer is made in the state when it originates from the state or is directed to and received in the state. The Act also provides that an offer is not made in the state when it appears in a newspaper published outside the state, in a newspaper published in the state with more than two-thirds of its circulation outside the state over the past 12 months, or on out-of-state radio or television. The statement that an offer originating from a person in the state is made in the state even if directed only to out-of-state recipients is correct because the offer's origin in the state is sufficient. The statement that an out-of-state broadcast is made in the state if received by a resident is wrong because the Act treats such broadcasts as not made in the state. The statement that an out-of-state newspaper offer is made in the state when copies are sold to residents is wrong for the same reason. The statement that an in-state newspaper offer is made in the state even when more than two-thirds of circulation is outside the state is wrong because that is the statutory exception.
The principal of a state-registered investment adviser willfully committed an act that violated a rule the Administrator had adopted under the Uniform Securities Act. The principal proves that she did not know the rule existed and had not been advised of it. The Administrator refers the evidence to the prosecuting attorney, who brings a criminal proceeding under the Uniform Securities Act.
Under the Uniform Securities Act, which statement is correct concerning the principal's criminal exposure? Answer: Imprisonment is unavailable if the principal proves she did not know of the rule, but a fine may still be imposed.
Uniform Securities Act § 409. The Administrator may refer evidence to the prosecuting attorney, who may bring the criminal proceeding (§ 409(b)). A willful violation of the Act, a rule or an order is punishable by a fine of up to $5,000, imprisonment for up to three years, or both. However, a person may not be imprisoned for violating a rule or order if the person proves they did not know of the rule or order; a fine is still possible. Because the principal proved lack of knowledge of the rule, imprisonment is unavailable, but a fine may be imposed. The general-penalty option ignores this exception. The no-penalty option is wrong because a fine remains possible. The intent-to-defraud option is wrong because the criminal standard is a willful violation, not intent to defraud, and the imprisonment bar controls here regardless.
In March 2026, an agent of a broker-dealer registered in State X sold a municipal bond to a State X resident. The agent knew his statement was false when he told the buyer that the bond was backed by the full faith and credit of the federal government. The buyer still owns the bond, which has declined in value, and no rescission offer has been made.
The buyer brings a civil action under the Uniform Securities Act. Which statement is correct concerning the buyer's claim? Answer: The buyer may tender the bond and recover the consideration paid, plus interest, costs and reasonable attorney's fees, less any income received.
Uniform Securities Act §§ 101 and 410. Municipal bonds are exempt from registration but are never exempt from the antifraud provisions, which apply to every offer, sale or purchase. A buyer who still owns the security may sue and, by tendering it, recover the consideration paid plus interest, costs and reasonable attorney's fees, less any income received. The market-value option is wrong because the price-paid minus market-value damages measure applies only when the security is no longer owned; the buyer still owns the bond. The exemption option is wrong because an exempt security remains fully subject to the antifraud provisions. The Administrator-only option is wrong because § 410 creates a private civil remedy for buyers; a buyer need not wait for the Administrator to act.
An agent of a broker-dealer registered in State X sold shares of a company whose stock is listed on a national securities exchange to a State X resident. In connection with the sale, the agent falsely stated that the company had just reported record quarterly earnings. The Administrator of State X learned of the statement and wishes to act.
Under the Uniform Securities Act, which action is available to the Administrator? Answer: Bring a cease-and-desist action for the false statement even though the security is a federal covered security.
Uniform Securities Act §§ 101 and 408, and the federal covered security provisions. Securities listed on a national exchange are federal covered securities: they are not registered in the state, and the state may not impose registration or stop-order requirements on them. The antifraud provisions, however, apply to every offer or sale regardless of registration status, so the Administrator may issue a cease-and-desist order based on the agent's false statement. The stop-order option is wrong because no state registration exists to suspend for a listed security. The registration-by-qualification option is wrong because federal covered securities are not registered by qualification in the state. The no-action option is wrong because the Administrator's antifraud authority is not limited by the security's federal covered status.
- Under the Uniform Securities Act, which of the following statements is true regarding a security sold in a transaction that is exempt from registration?
Answer: A sale that is exempt from registration remains subject to the Act's antifraud provisions, and the person claiming the exemption has the burden of proving it applies.
Uniform Securities Act § 101 applies the antifraud provisions to every offer, sale, or purchase of a security, whether or not the security or transaction is exempt from registration under § 402. An exemption removes only the registration requirement, so the Administrator may investigate the sale under § 407 and may issue a cease-and-desist order under § 408, and the seller remains exposed to civil liability under § 410. The person claiming an exemption also has the burden of proving it, so the statement that a sale exempt from registration remains subject to the antifraud provisions and that the claimant bears the burden is correct. The statement that the Administrator may not investigate an exempt transaction is wrong because § 407 authorizes investigations of any violation of the Act. The statement that an exemption relieves the seller of civil liability is wrong because the exemption does not reach the antifraud provisions. The statement that a cease-and-desist order requires a prior hearing is wrong because § 408 permits such orders with or without a hearing.
- Under the Uniform Securities Act, which of the following statements is true regarding a written rescission offer that satisfies the Act's requirements and is made to a buyer who still owns the security?
Answer: If the buyer fails to accept the offer within 30 days of receiving it, the buyer may not bring a civil action under the Act.
Uniform Securities Act § 410 provides that a buyer who still owns the security and receives a written rescission offer consisting of the consideration paid plus interest, less income received, may not sue under the Act if the buyer fails to accept the offer within 30 days of receiving it; the statement that a buyer who fails to accept within 30 days may not bring a civil action is therefore correct. The statement that the buyer may reject the offer and sue for the consideration plus interest, costs, and fees is wrong because a compliant rescission offer, if not accepted within 30 days, bars the action. The statement that acceptance bars only rescission but not a later damages claim is wrong because the bar applies to the civil action generally. The statement that the offer must include costs and attorneys' fees is wrong because the statutory offer is consideration plus interest less income; costs and fees are recoverable only if the buyer is entitled to sue and prevails.
- Under the Uniform Securities Act, which of the following statements is true regarding civil liability for a violation of the Act's antifraud provisions?
Answer: A control person is jointly liable with the violator unless the control person proves he or she did not know and could not reasonably have known of the violation.
Uniform Securities Act § 410 imposes joint liability on control persons and persons who materially aid a violation unless they did not know and could not reasonably have known of the facts giving rise to the violation. The statement that a control person is jointly liable unless the control person proves lack of knowledge and reasonable care is correct. The statement that an aider is liable only after the buyer obtains an unsatisfied judgment against the primary violator is wrong because liability is direct and joint. The statement that a buyer who no longer owns the security may recover the consideration paid is wrong; the consideration remedy requires tendering the security, while a buyer who no longer owns it recovers damages. The statement that rescission and damages actions have different limitations periods is wrong; both are subject to the same period of three years from the sale or advice or two years from discovery, whichever occurs first.
- Under the Uniform Securities Act, which of the following statements is true regarding the Administrator's authority to issue cease-and-desist orders and to suspend registrations summarily?
Answer: The Administrator may issue a cease-and-desist order without a prior hearing, and a registrant whose registration is summarily suspended may obtain a hearing that must be set within 15 days of a written request.
Under Uniform Securities Act §§ 204 and 408, the Administrator may issue a cease-and-desist order with or without a prior hearing, and a registration may be summarily postponed or suspended pending a hearing that must be set within 15 days of a written request. The statement that the Administrator may issue a cease-and-desist order without a prior hearing and that a summarily suspended registrant may obtain a hearing set within 15 days of a written request is correct. The statement that a cease-and-desist order requires a prior hearing on the alleged violation is wrong because § 408 expressly permits issuance without one. The statement that the Administrator must first obtain a court injunction before issuing a cease-and-desist order is wrong; an injunction is a separate judicial remedy, not a prerequisite. The statement that a summary suspension requires notice, an opportunity for a hearing, and written findings before taking effect is wrong because summary suspension is permitted pending the hearing, while those protections attach to other orders.
