CH.3 [Enforcement]

Subpoena

An official request for information from an authority figure

Administrator’s powers

• Registration oversight

• Authority to investigate

• Ability to issue rules, orders, and notices

Registration oversight

• Applicants with checkered pasts may be denied registration

• Current registrations may be suspended or revoked if a law or rule is broken

• Any action taken must be in the public’s interest

Authority to investigate

• Administrator may investigate if jurisdiction exists

• Jurisdiction exists when a registered person and/or client reside in their state during:

  • An offer of securities

  • A securities transaction

• Administrator may conduct private or public investigations

• Administrator may require a person to testify (subpoena)

Jurisdiction over media programs

• Publishing or broadcasting state is generally given jurisdiction

• Newspaper rule

  • If more than 66% circulated outside of the publishing state, no jurisdiction

ability to issue rules, orders, forms, and notices

• Rules apply generally

• Orders apply to specific circumstances

Punitive actions available to state administrator

• May deny applicants from registration

• May suspend or revoke current registrations

Cause for punitive action

• Must be in the public’s interest, plus any of the following:

  • An incomplete, false, or misleading application was submitted

  • Any of the following occurred within the past 10 years:

    • Violation of a state or federal securities law

    • Any felony conviction

    • A securities-related misdemeanor conviction

  • Enjoined by a court from engaging in the securities industry

  • Is subject to regulatory action by another state administrator

  • Engaging in dishonest or unethical practices

  • Insolvency

  • Violated a foreign securities law within the past 5 years

  • Is not qualified due to lack of experience, training, or knowledge

  • Failure to supervise employees

  • Failure to pay appropriate filing fees

Required to enforce punitive actions

• State administrator must provide:

  • Appropriate prior notice to the applicant

  • Opportunity for hearing is provided

  • Disclosure of written facts and findings of law

Withdrawal of registration

Person voluntarily requests their registration to be removed

Cancellation of registration

• State administrator proactively removes the registration

• Most common reasons:

  • Death

  • Incapacitation

  • Cannot get in contact with the person

Criminal penalties

• Must involve a willful violation of the law

• 5-year statute of limitations

• Potential penalties:

  • $5,000 maximum fine

  • 3-year maximum jail sentence

Civil liabilities

• May result from a non-willful violation of the law

• Can involve a lawsuit or arbitration

• Can be avoided through the right of rescission

Restitution for security purchases (client buys)

• Original cost of the security

• Less any income received from security

• Plus the legal rate of interest

• Plus any legal fees

Restitution for securities sales (client sells)

• Client may recover (buy back) the security

• Less any income paid by the security

• Less any legal fees

Restitution for investment advice

• Cost of the investment advice

• Plus actual damages due to investment advice

• Less any income received from security

• Plus the legal rate of interest

• Plus any legal fees

Right of rescission letter

• Proactive offer to make an investor “whole”

  • Offers the restitution listed above

• Client has 30 days to accept the offer

• No legal action may be taken by an investor if the offer is rejected

Civil penalties

Fines levied by state administrators for violations of the law