Unit 4: Remedies & State Administrative Provisions

Regulators file the Form U6 to

report disciplinary actions against firms and indivduals

The Admin has jurisdiction if an offer →

1. Originates in their state

   1. Is directed to their state, OR

2. Is accepted in their state

Mailing or a confirmation or proceeds (money) from a transaction being sent to a state does / doesn’t give the Admin of that receiving state jurisdiction.

Mailing or a confirmation or proceeds (money) does not

If an Admin has jurisdiction, they can conduct investigations with/without proof

without proof

If an Admin has jurisdiction, they can/can’t issue subpeonas

can issue subpeonas

The Administrator may issue subpoenas to individuals or entities inside or outside the Administrator’s state?

both

An Admin can/can’t issue cease and desist orders with/without prior notice

can issue cease and desist orders without prior notice

Admins can/can’t issue court injunctions barring securities offerings or sales because

can’t issue court injunctions, only courts can

Admins can/can’t revoke non-profit exemptions

can revoke non profit exemptions

Admins can/can’t require affadavits

can

Admins can/can’t issue permanent denial/suspension/revocation without … and …

can’t issue permanent penalties without notice and hearing opportunities

Admins can/can’t deny based solely on lack of experience

can’t

Admins can/can’t issue search warrants

can’t

Admins can/can’t issue injunctions

can’t

Admins can/can’t enforce subpoenas

can’t

Admins can/can’t change GAAP

can’t

Admins can/can’t put someone in jail

can’t

Admins can/can’t freeze assets directly

can’t

Does Admins approval of BD registration imply that it is true and accurate? What does it do?

no, just that it’s made sufficient disclosure to sell its securities in that state

Admins can/can’t deny registration applications if information is incomplete, misleading, or false

can

Termination of registration from a violation of the USA →

the agent/IAR and their firm receive notice, can request a hearing within 15 days of receipt, hearing has to have all 3 findings of fact, and a final order is given which can be appealed within 60 days

At the hearing, under the USA, the person overseeing is required to have 2 findings of facts →

taking the action is in the public’s best interest and there was a violation by the accused

For a temporary suspension of their registration, the Admin is required to give the securities professional either … notice or …notice

prior notice or prompt after the fact notice

An Administrator can deny, suspend or revoke a registration if a … securities regulator has denied or revoked the agent’s registration in the…

foreign securities regulator has denied or revoked the agent’s registration in the last 5 years

An Admin can revoke or suspend a state registration if an insolvency occurs, which is when

there are more liabilities than assets/current obligations can’t be met

A summary suspension is an 

immediate, temporary halt to a BD/IA/agent/IAR’s registration issued before a hearing, when the Admin believes the public is at risk

A summary suspension does/does not require prior notice, does require…

doesn’t require prior notice, does require prompt after the fact notice and opportunity for a hearing

To deny a security’s registration (2),

the Admin needs the action to be in the public interest AND a specific statutory ground exists like incomplete/excessive fees, but consecutive years of losses alone ie NOT grounds

Withdrawal is a termination by request on the …, effective …, and the Admin retains …

U5, effective after noon in 30 days, and the Admin retains jurisdiction over you for 1 year

An individual in an investigation/disciplinary action tries to withdrawal, the request is …

tolled (paused)

Cancellation is when the registrant no longer exists or has ceased doing business; the Admin cancels it bc it’s unused (ex., dissolution of business, death, legal incompetence)

yep

If an IAR’s registration is revoked in another state, it will

be revoked in the rest

A state Administrator can/can’t issue a search warrant and can/can’t freeze assets of a BD or agent

can’t issue a search warrant and can’t freeze assets

If a BD’s and IA’s registration is ended (cancelled/suspended/revoked), then all registrations of its employees are

suspended until the firm’s registration is reinstated

Civil liabilities are when the …, civil damages are … recovery to …, and the statute of limitations is …

investor victim sues the perpetrator, damages are cash recovery to be made whole, the earlier of the earlier of either 3 years from the violation or 2 years from discovery

Treble damages is the

recovery for insider trading

For … lawsuits, neither the plaintiff nor the defendant must be alive because a lawsuit may be brought or continued by an estate

civil

Criminal liabilities are when the …, criminal penalties are …, and the statute of limitations is …

the state prosecutors (not Admin) prosecute the agent/IAR, criminal penalties are up to a $5,000 fine and/or 3 years in jail, and statute of limitations is within 5 years of the violation

If an agent unintentionally sells non-exempt securities in a non-exempt transaction in the state, the best way they can avoid being sued/clears the violation for the agent is …

offering the client a recission

Recission is the (2)

cancellation of a trade/contract and return of consideration paid, offering to make the victim whole (like rescinding the transaction)

Recission pays the customer …

the original cost of securities plus interest from the transaction payment date

If a client doesn’t respond to an offer of recission within 30 days, the client

LOOSES the right to sure the BD for indefinitely

Even if a client rejects the offer of recission within the 30 days, they may still

sue

An unregistered, non-exempt security can be sold to an … client because it is …

institutional client because it is an exempt transaction

In recission, interest is paid

from the payment date of the transaction (not the trade/settlement/sale date)

In recission, the attorney’s fees and costs are paid by

the defendant

In recission, income received from the investment is added/subtracted to/from the recovery

income is subtracted from the recovery

Admins may require the filing of all advertising or sales literature to prospective investors or advisory clients, unless

the security or transaction is exempt

If an IAR of a federally covered IAF leaves, who has to give notice?

the IAR has to tell the Admins of every state in which they were registered

The state(s) that can examine the books of a federally-covered IAF is/are

only its home state’s Admin (the state in which the IAF’s principal office is located)

Federally-covered IAFs are subject to examination by

the SEC and the Admin of its home state

Under NASSA Model Rules, states require BDs to maintain records for

3 years, first 2 onsite

Under NASSA Model Rules, states require IAs to maintain records for

5 years, first 2 onsite

NASSA Model Rules require BDs and IAs to store records onsite (both for … out of ../..) why?

regulatory inspections and investigations

A personal bankruptcy must be … if it occurred in the past … years

reported on an application for securities registration if in the past 10 years

Only when the applicant is … can personal bankruptcy be grounds or denying or revoking a securities registration, but never…

currently insolvent, never a statutory disqualification

Agent’s are/aren’t required to notify their clients when they leave a BD

aren’t

When an agent is moving between BD firms and their new registration is not valid yet, the agent can

only execute personal transactions (can’t do business for clients at prior firm after leaving)

While a security's registration statement is effective, an Administrator requires ongoing reports on the offering's progress no more than … under the USSA

quarterly

BD and IAs must maintain records on one of these types of media: on paper, microfilm, or electronically

yep

BDs and IAs must retain litigation records

until final disposition

BDs and IAs must retain organizational records until

at least 2 years after business termination

All BDs records must be readily accessible in their principal office for the first 2 years, AND store

a duplicate copy separately of all records for the same time required for the original records