Series 66: Uniform Securities Act (Administrative Procedures)

Criminal violations of the Uniform Securities Act are punishable by:

$5,000 fine and 3 years in jail Under the Uniform Securities Act, criminal violations are punishable by a $5,000 fine per offense and up to 3 years in prison. In contrast, criminal violations of Federal law are punishable by a $10,000 fine per offense and up to 5 years in prison.

Where no fraud is present, an action to recover monies arising from a violation of the Uniform Securities Act must commence within:

2 years following discovery Civil suits to recover monies must be brought within 2 years of discovery of the violation, but no later than 3 years after the violation occurred.

The statute of limitations on civil suits arising from alleged violations of the Uniform Securities Act is:

2 years of discovery Civil suits alleging violation of the Act must be brought within 2 years of discovery of the alleged violation, but no later than 3 years after the actual violation occurred.

Suits alleging criminal violations of the Uniform Securities Act must be brought within:

5 years Suits alleging criminal violations of the Uniform Securities Act must be brought within 5 years of the occurrence of the alleged violation.

Which of the following is defined as an offer which comes under a State Administrator's jurisdiction?

An offer to sell a security made by an agent in another state to a customer that lives in the Administrator's state An offer made by an out of state agent into another State comes under both State Administrators' jurisdiction. Offers made through a television broadcast originating in another State are excluded from the Administrator's jurisdiction in the State where received. Only the Administrator in the State from which the broadcast originates has jurisdiction. If a customer is briefly vacationing in a State, and is contacted by his broker-dealer (who has no office in that State) while he is on vacation, then the broker-dealer does not have to be registered in that State (and therefore its agents do not have to be registered). Thus, this offer would not fall under the jurisdiction of the Administrator of the State in which the customer is vacationing.

Under the Uniform Securities Act, in a civil suit brought by a purchaser against a seller that is alleged to have violated the Uniform Securities Act, the burden of proof rests with the:

Buyer of the securities The burden of proof in any lawsuit is placed on the plaintiff - not the defendant. The buyer of the securities is the plaintiff in the suit and must prove to the satisfaction of the court, that the seller (the defendant) violated the Uniform Securities Act.

Regarding inspection powers, the State Administrator: I can visit and conduct a walk-in audit of broker-dealer offices intra-State if it is in the public interest or for the protection of investors II can visit and conduct a walk-in audit of broker-dealer offices inter-State if it is in the public interest or for the protection of investors III can neither visit nor conduct a walk-in audit of broker-dealer offices intra-State IV can neither visit nor conduct a walk-in audit of broker-dealer offices inter-State if it is in the public interest or for the protection of investors

I and II The Uniform Securities Act empowers the Administrator to conduct inspections within or without the State, as the Administrator deems necessary or appropriate in the public interest or for the protection of investors. The Administrator can inspect records either inside or outside that State, as long as the transaction involved occurred in that State; or a solicitation was made in that State.

If the Administrator believes that there has been a violation of the Uniform Securities Act, the Administrator is empowered, by order or decree, after providing the opportunity for a hearing, to: I revoke the registration of an investment adviser in that State II bar an investment adviser from operating within that State III require the posting of a larger surety bond in order for the investment adviser to remain in business in that State

I and II If the Administrator believes that there has been a violation of the Uniform Securities Act, the Administrator may, by order, suspend or revoke the registration of the investment adviser in that State; and can bar the investment adviser from operating in that State. When taking such an action, an opportunity for a hearing must be provided to the investment adviser. The amount of the surety bond coverage required for registration is fixed under State law, though there can be a higher amount required if the adviser takes custody of client funds or securities, or a lower amount if minimum net capital standards are met. This amount is not changed based upon someone violating the Act.

If an investment adviser is found to be insolvent, powers of the Administrator include the ability to: I petition the court to issue a permanent injunction against a person from engaging in the investment advisory business II make the showing required to appoint a receiver to protect the assets of customers held in custody of the investment adviser III imprison individuals for a period of up to 10 years for willful violations

I and II The State Administrator is empowered to, upon discovering a violation of the Uniform Securities Act, seek a permanent injunction (from the appropriate court) against a person from engaging in the investment advisory business; and can make a showing (to a court) so that a receiver is appointed to protect the assets of customers held in custody by the investment adviser. When taking such action, an opportunity for a hearing must be provided to the investment adviser. The Administrator cannot imprison individuals for violations - this action can only be taken in a court of law. (Note that the Administrator may petition a court to take such action.)

Who administers the Uniform Securities Act?

NASAA NASAA is the North American Securities Administrators Association. Each State Administrator enforces the Uniform Securities Act - the State "Blue Sky Laws" that require registration of broker-dealers, their agents, non-federal covered advisers, and investment adviser representatives, in each State where they deal with the public. The Investment Advisers Act of 1940 is administered by the SEC. FINRA only regulates broker-dealers, not investment advisers. The MSRB (Municipal Securities Rulemaking Board) writes rules for the municipal market.

Under the Uniform Securities Act, a person who violates the provisions of the Act can be subject to: I Criminal Penalties II Civil Penalties III Administrative Censure IV Administrative Suspension

I and IV A person who has violated the provisions of the Uniform Securities Act is subject to suspension by the Administrator; or can have their registration denied or revoked by the Administrator. There is no such thing as an "Administrative Censure." For violations of the Act, a person is subject to Civil Liability only (basically, that is, pay back the money). There is no such thing as a Civil Penalty under the Act. However, for willful injurious actions, the Act provides for both Criminal Liability and Criminal Penalties (fines and jail).

Information received by the Administrator in a private investigation may: I be shared among the officers and employees of the Administrator II not be shared among the officers and employees of the Administrator III be shared with any interested party that makes a written request IV not be shared with any interested party that makes a written request

I and IV The Administrator can conduct both public and private investigations. When conducting a private investigation the Administrator will not disclose any information about the investigation to anyone, other than the employees of officers of the Administrator (which makes sense, since they are conducting the investigation).

Which statements are TRUE regarding rules and orders that are entered by the Administrator? I Rules are general in applicability II Rules are specific in applicability III Orders are general in applicability IV Orders are specific in applicability

I and IV The Administrator is empowered to interpret the Uniform Securities Act by writing rules that give further depth to the Acts provisions - these are general in applicability - that is, they apply to everyone. The Administrator is empowered under the Act to issue orders, such as "Stop" orders or "Cease and Desist" orders. These are directed at a specific person that the Administrator believes has violated the Act, or is about to violate the Act.

A broker-dealer located in State A makes an offer of securities to a customer whose principal residence is in State B. The customer has temporarily moved to State C and has asked the post office in State B to forward the mail to the customer's address in State C. Which State Administrator(s) has (have) jurisdiction over the offer? I State A II State B III State C

I only Because the broker-dealer is located in State A, that State Administrator has jurisdiction. Normally, if an offer is received in a State (B in this case), then State B's Administrator would have jurisdiction. But the offer was never received in State B because it was forwarded by the post office on to State C. Thus, an offer was never made in State B and that State Administrator does not have jurisdiction. One would think that because the offer was ultimately received in State C, that it would have jurisdiction, but this is not the case either. In this situation, the Uniform Securities Act makes an exception. The issue here is that the broker-dealer had no idea that the mail was forwarded to State C and should not be subject to the law of State C on this offer. The intent is to make sure that an innocent broker-dealer is not "entrapped" by a State and made subject to that State's law when an offer of securities is forwarded into that State by a third party without the broker-dealer's knowledge.

An Investment Adviser is registered in both State A and State B, and has its principal office in State B. State A would be allowed to: I review the Investment Adviser's books and records in State A II review the Investment Adviser's books and records in State B III require advertising and sales literature to be filed in State A IV require advertising and sales literature to be filed in State B

I, II and III only State A has the authority to inspect the IA's books and records, no matter where they are located, so State A can inspect the IA's books and records in both State A and State B. State A can require the filing of advertising and sales literature used in State A. It cannot require the filing of advertising and sales literature used in State B - only State B can do this.

Which of the following statements are TRUE about an offer of rescission? I The offer can only be made prior to the institution of a lawsuit alleging a securities violation II An offer must be made to buy back the security at the original purchase price III The customer must be paid interest at the legal rate in the State, less any dividend or interest income received from that security IV The customer must sign a waiver of non-compliance to accept the offer

I, II, III If an offer of rescission is made on the inadvertent sale of a non-exempt security that should have been registered under the Act, the offer can only be made prior to the institution of a lawsuit alleging a securities violation. An offer must be made to buy back the security at the original purchase price, plus the customer must be paid interest at the legal rate in the State (6%), less any dividend or interest income received from that security. There is no requirement for the customer to sign a waiver of non-compliance to accept the offer. Any offer of rescission must be accepted within 30 days of the offer.

The State Administrator is empowered to: I issue subpoenas to persons inside or outside that State II issue a cease and desist order III issue an order suspending or revoking a registration IV enjoin persons from operating in the securities business

I, II, III Only a court of law can enjoin a person from being in the securities business - the Administrator cannot do so. The Administrator can issue an order suspending or revoking a registration; can conduct investigations and subpoena witnesses for these investigations; and can issue a cease and desist order.

The Administrator is authorized to do which of the following? I Obtain an injunction against any person suspected of violating the Act II Revoke the registration of all agents associated with a broker-dealer when the broker-dealer's registration is revoked III Subpoena the books and records of a broker-dealer after a suspension order is issued IV Suspend a registration pending a hearing without stating a reason for the suspension

I, II, III The Administrator can revoke the registration of all agents associated with a broker-dealer if the broker-dealer's registration is revoked. This must happen because an agent must be affiliated with a broker-dealer to be registered. The Administrator can subpoena books and records; and can obtain an injunction in court against any person suspected of violating the Act. The Administrator cannot suspend a registration pending a hearing unless a reason for the suspension is stated.

If the Administrator designates an officer to conduct a hearing, the officer may: I administer oaths to witnesses and take evidence II subpoena witnesses and compel their attendance III require the production of books and records

I, II, III The State Administrator is empowered, at a hearing, to administer oaths to witnesses ("Do you promise to speak the truth, so help you God" etc.); can subpoena witnesses to attend hearings; and can require the production of books and records at such hearings.

The anti-fraud provisions of the Uniform Securities Act apply to: I buyers of exempt securities II buyers of non-exempt securities III sellers of exempt securities IV sellers of non-exempt securities

I, II, III, IV Anti-fraud questions are simple - the anti-fraud rules apply to everyone and everything, as long as a security is involved!

Which statements are TRUE about the Administrator's investigation powers? I The Administrator can conduct public investigations II The Administrator can conduct private investigations III The Administrator can conduct in-State investigations IV The Administrator can conduct out-of-State investigations

I, II, III, IV The Administrator can conduct both public and private investigations; and investigations can be conducted in any State by the Administrator.

Which of the following come under the jurisdiction of the State Administrator? I A mailing of sales literature to a customer in that State II A mailing of sales literature to a customer in a neighboring State III A television broadcast from within that State, received in that State IV A television broadcast from a neighboring State, received in that State

I, II, and III If an offer of securities is directed into a State, it comes under the jurisdiction of that State Administrator. Thus, Choices I and II clearly fall under the Administrator's jurisdiction. Regarding television broadcasts, the interpretation is that if the broadcast originates in the State; and is received in the State; then it falls under the jurisdiction of State Administrator in the receiving State. If the broadcast originates in another State; and is received in the State; then it does not fall under the jurisdiction of the State Administrator in the receiving State. Simplified, this means that only the Administrator in the State from which the broadcast originated has jurisdiction. Thus, Choice III is correct; and Choice IV is incorrect.

Under the Uniform Securities Act, after an unintentional illegal sale, the customer who bought the issue can: I sue under civil liability II sue under criminal liability III recover the cost of the securities plus 6% interest IV recover attorney's fees

I, III, IV If there is no willful violation of the Act, civil liabilities apply. The purchaser can recover the cost of the securities plus 6% interest and attorney's fees.

The Administrator can take which of the following actions? I Require a witness to testify in a hearing, even though the testimony may tend to incriminate that witness II Suspend the constitutional privilege against self-incrimination available to an individual III Inspect a broker-dealer located in another State that does business in the Administrator's State IV Coordinate inspections with those conducted by the Securities and Exchange Commission

I, III, IV The Administrator may coordinate inspections with those conducted by the Securities and Exchange Commission; may inspect a broker-dealer located in another State that does business in the Administrator's State; and may require a witness to testify in a hearing, even though the testimony may tend to incriminate that witness. However, the Administrator cannot suspend the constitutional privilege against self-incrimination available to an individual, since this Federal law (5th Amendment to the Constitution) supersedes any State law.

An individual's registration as an agent would be denied under the Uniform Securities Act if the individual was convicted: I of a drunk driving felony 8 years ago II of a drug misdemeanor 8 years ago III of a securities misdemeanor 8 years ago IV in a lawsuit brought by the Securities and Exchange Commission 8 years ago

I, III, and IV An agent's registration will be denied if the agent was convicted of a misdemeanor involving securities or monies; or any felony; within the past 10 years. Thus, Choices III and IV would clearly result in registration being denied. Choice I, a conviction 8 years ago for a drunk driving felony, is another reason for denial of registration. A conviction 8 years ago for a drug misdemeanor, while not a good thing, is not a stated reason for denial of registration.

The Uniform Securities Act subjects agents and broker-dealers who violate the Act's provisions to which of the following? I Civil Liability II Civil Penalties III Criminal Liability IV Criminal Penalties

I, III, and IV The Uniform Securities Act provides for civil liability for unintentional violations of the Act (refund of customer's money plus 6% interest and attorney's fees). For intentional (and serious) violations, the Act provides for criminal liability (jail!) and criminal penalties ($5,000 fine per offense). The Act does not provide for civil penalties (that is, civil fines). These could only be imposed if an action were taken in civil court and the judge imposed punitive damages.

A sales representative who fails to register as an agent of a broker-dealer: I has committed a felony II has committed a misleading Act III is subject to civil liability IV is subject to criminal liability

II and III only If a sales representative fails to register in a state, this is not deemed to be a serious enough offense for criminal action. This person is subject to civil liability.

The intentional omission of material facts when offering or selling a security can result in: I Civil liability II Criminal liability III Criminal penalties

II and III only This is a subtle question. The willful omission of material facts can result in Criminal Liability and Criminal Penalties. The unintentional omission of material facts when offering or selling a security results in Civil Liability under the Act.

An agent is registered in State Y. The agent accompanies a customer to State Z on a golf outing, where the agent makes an offer of securities to the customer. Which statements are TRUE? I State Y has jurisdiction over the offer of securities II State Z has jurisdiction over the offer of securities III The agent may qualify for a de minimis exemption in State Y IV The agent may qualify for a de minimis exemption in State Z

II and IV Under Uniform State Law, the Administrator has jurisdiction over an offer of securities or advisory services if an offer: originates in the Administrator's State; is directed into the Administrator's State; or is accepted in the Administrator's State. Basically, the "idea" behind State law is that there must be a "presence" in the State for that State Administrator to have jurisdiction. In this scenario, the "vacationing" exclusion does not apply because it ONLY applies when an agent registered in another State makes an offer into a State where the customer is vacationing. It does NOT apply if both the agent and the customer are both in another State, where the offer is made. Both the agent and the customer are vacationing in State Z, where the offer of securities is made. Therefore, State Z has jurisdiction. The agent did not make an offer of securities from State Y and the offer was not accepted in State Y, so State Y does not have jurisdiction in this instance. If the agent makes a "few" offers to customers in State Z, the agent may qualify for a de minimis exemption in the State (but this is only available to broker-dealers and their agents in a minority of States). The agent gets no such exemption in State Y because the agent is physically located there.

A sales representative who sells unregistered securities to customers in non-exempt transactions: I has committed a felony II has committed a misleading Act III is subject to fines and imprisonment IV is subject to buying back the security at the purchase price plus interest at the legal rate in that State, less any dividend or interest income received on that security

II and IV only If a sales representative sells unregistered securities in a non-exempt transaction (these securities should have been registered in the State), he or she is subject to civil liability (this is not serious enough for criminal penalties). In this case, the individual is subject to buying back the security at the original price, plus interest and attorney's costs; less any income received from the security during the period it was held.

A sales representative who unintentionally gives a fictitious quote to a customer: I has committed a felony II has committed a misleading Act III is liable to execute a trade for the customer at that price IV is subject to buying back the security at the purchase price plus interest at the legal rate in that State, less any dividend or interest income received on that security

II and IV only If a sales representative unintentionally gives a fictitious quote, that is considered to be a misleading action, which is subject to civil liability, since the misrepresentation was not willful. In this case, the individual is subject to buying back the security at the original price, plus interest and attorney's costs; less any income received from the security during the period it was held.

A sales representative who knowingly misappropriates customer securities for personal use: I has committed a fraudulent and misleading Act II has committed a felony III is subject to civil liability IV is subject to possible fines and/or imprisonment

II and IV only This sales representative has stolen customer securities, which is considered to be a felony. In this case, the individual is subject to possible fines and/or imprisonment.

Which of the following statements about penalties under the Uniform Securities Act are TRUE? I Criminal liability may be offset by rescission II Civil liability may be offset by rescission III The statute of limitations on criminal actions is 5 years IV The statute of limitations on civil actions is 3 years

II, III, IV Only civil liability can be offset by rescission. Criminal liability cannot be offset by rescission. The statute of limitations on civil cases is 3 years (but no later than 2 years after discovery); for criminal cases it is 5 years.

Transactions that violate the Uniform Securities Act are voidable at the option of the:

Purchaser Transactions that violate the Act are voidable by the purchaser. The seller is obligated under civil liabilities to pay the investor the original cost of the securities plus 6% interest.

A broker-dealer located in State A makes an offer of securities to a customer whose principal residence is in State B. The customer has temporarily moved to State C and has asked the post office in State B to forward the mail to the customer's address in State C. Which State Administrator(s) has (have) jurisdiction over the offer?

State A only Because the broker-dealer is located in State A, that State Administrator has jurisdiction. Normally, if an offer is received in a State (B in this case), then State B's Administrator would have jurisdiction. But the offer was never received in State B because it was forwarded by the post office on to State C. Thus, an offer was never made in State B and that State Administrator does not have jurisdiction. One would think that because the offer was ultimately received in State C, that it would have jurisdiction, but this is not the case either. In this situation, the Uniform Securities Act makes an exception. The issue here is that the broker-dealer had no idea that the mail was forwarded to State C and should not be subject to the law of State C on this offer. The intent is to make sure that an innocent broker-dealer is not "entrapped" by a State and made subject to that State's law when an offer of securities is forwarded into that State by a third party without the broker-dealer's knowledge.

A customer that lives in State A is traveling by air to State C. While he is changing planes in State B, he receives a call on his cell phone from his broker, who solicits him to buy a security. He places the order with his broker and boards his connecting flight to State C. When he returns to his home in State A, he finds the trade confirmation in his mailbox. Which State Administrator(s) has (have) jurisdiction over the transaction?

State A only This is an existing customer that is temporarily in State B when he is changing planes to catch a connecting flight. In such a case, only the Administrator of the customer's home State (State A) has jurisdiction. If the customer were to spend a lot of time in State B (some States apply this if more than 2 weeks are spent in the State; others apply it after 30 days are spent in the State), then State B would also have jurisdiction. State C has nothing to do with this trade.

An agent and her customer reside in State A, where the agent is registered. The agent is vacationing in State B, where her client also happens to be vacationing. While in State B, the agent makes an offer of securities to the client. Who has jurisdiction over the transaction?

State B only Under Uniform State Law, the Administrator has jurisdiction over an offer of securities or advisory services if an offer: originates in the Administrator's State; is directed into the Administrator's State; or is accepted in the Administrator's State. Basically, the "idea" behind State law is that there must be a "presence" in the State for that State Administrator to have jurisdiction. In this scenario, the "vacationing" exclusion does not apply because it ONLY applies when an agent registered in another State makes an offer into a State where the customer is vacationing. It does NOT apply if both the agent and the customer are both in another State, where the offer is made. Both the agent and the customer are vacationing in State B, where the offer of securities is made. Therefore, State B has jurisdiction. The agent did not make an offer of securities from State A and the offer was not accepted in State A, so State A does not have jurisdiction in this instance.

A broker-dealer headquartered in State X has an agent that is located in State Y. The agent accompanies a customer to State Z on a golf outing, where the agent makes an offer of securities to the customer. Which State(s) has (have) jurisdiction over the offer?

State Z only Under Uniform State Law, the Administrator has jurisdiction over an offer of securities or advisory services if an offer: originates in the Administrator's State; is directed into the Administrator's State; or is accepted in the Administrator's State. Basically, the "idea" behind State law is that there must be a "presence" in the State for that State Administrator to have jurisdiction. In this scenario, the "vacationing" exclusion does not apply because it ONLY applies when an agent registered in another State makes an offer into a State where the customer is vacationing. It does NOT apply if both the agent and the customer are both in another State, where the offer is made. Both the agent and the customer are vacationing in State Z, where the offer of securities is made. Therefore, State Z has jurisdiction. The agent did not make an offer of securities from State Y and the offer was not accepted in State Y, so State Y does not have jurisdiction in this instance. The fact that the agent's broker-dealer is headquartered in State X has no bearing on the Administrator's jurisdiction.

An Investment Adviser located in State A has 3 clients - 1 each in States X, Y and Z. The Investment Adviser places an advertisement offering its services in a local newspaper and gives a seminar about its services in State Z. The Investment Adviser must be registered in:

States A and Z Because the Investment Adviser is physically located in State A, it must be registered in State A. Additionally, advertising in the newspaper in State A requires it to be registered in State A. The Investment Adviser must be registered in State Z because it is offering a seminar there. The Investment Adviser is exempted from registering in States X and Y because it only has 1 client in each State and does not have an office in those States. An adviser with no office in a State, that deals with 5 or fewer clients in a State, is exempted from registration.

A registered investment adviser lives in State X. The adviser does business with 1 client in State A and 1 client in State B. The adviser gives seminars about investing to groups of potential customers in State C. The adviser is required to register in:

States X and C only Under Uniform State Law, the Administrator has jurisdiction over an offer of securities or advisory services if an offer: originates in the Administrator's State; is directed into the Administrator's State; or is accepted in the Administrator's State. Basically, the "idea" behind State law is that there must be a "presence" in the State for that State Administrator to have jurisdiction.This adviser is physically located in State X, so the adviser must register in State X. Because the adviser has no location in States A and B, and only has 1 client in each of these States, the adviser qualifies for a "de minimis" exemption and does not have to register in those States. The adviser is giving investment seminars to "groups" of potential customers in State C. This activity requires the adviser to be registered in State C.

The State Administrator receives a complaint about a Federal Covered adviser which has made a notice filing in the State, alleging that the adviser stole from him. Which statement is TRUE about this?

The Administrator can investigate the complaint While NSMIA (National Securities Markets Improvements Act of 1996) partitioned responsibility for investment adviser supervision between the Federal government (Federal Covered Advisers) and the States (State-registered advisers), it retained State jurisdiction to investigate and enforce any violation of State law with respect to fraud or deceit, covering all advisers, whether State-registered or Federal Covered.

Under the Uniform Securities Act, which statement is TRUE regarding the Administrator's power to amend or rescind provisions of the Act?

The Administrator may amend or rescind any provision of the Act, if the action is necessary and in the public interest The Uniform Securities Act allows the Administrator to make, amend, or rescind any provision of the Act, if the action is necessary and in the public interest. No prior approval of NASAA, FINRA, or the SEC is required.

An agent enters into a transaction with a customer that is illegal under the Uniform Securities Act. The agent explains this to the customer, and the customer signs a statement that she knows that the transaction is illegal. Which statement is TRUE?

The Administrator may suspend or censure the agent and can pursue civil claims A customer signing a statement, that he or she knows that the transaction being performed for or by that customer is illegal, does not make it OK! The Administrator can pursue all available remedies against the agent, including censure, revocation of registration and can file a civil suit in court. Review

An agent of a broker-dealer is located in State A. The agent solicits a customer located in State B, but no sale of securities results from that contact. The agent recontacts the customer in State C, where the customer spends winters and a sale of securities results. Which State Administrators have jurisdiction?

The Administrators of States A, B and C Under Uniform State Law, the Administrator has jurisdiction over an offer of securities or advisory services if an offer: originates in the Administrator's State; is directed into the Administrator's State; or is accepted in the Administrator's State. Basically, the "idea" behind State law is that there must be a "presence" in the State for that State Administrator to have jurisdiction. Because the broker-dealer and agent are located in State A, that Administrator has jurisdiction. Because the customer was initially contacted in State B, that Administrator has jurisdiction. Finally, the customer is recontacted in State C, where he or she spends winters (which is presumably longer than the "vacationing" exclusion) so the Administrator of State C has jurisdiction as well. Also note that it is possible that the "de minimis" exemption could be used in this example (a broker-dealer with no office in a State that solicits 5 or fewer clients in that State in 1 year), but this question does not address how many other clients this agent has in States B and C or how many solicitations this agent made in States B and C.

XYZ Advisers is a federal covered adviser with offices in States A, B and C. If the Administrator of State A receives a written complaint alleging that the adviser misappropriated that customer's funds, which statement is TRUE?

The Administrators of States A, B and C can investigate the complaint This is a federal covered adviser, so it is not registered with any State; rather, it is registered with the SEC and only the SEC can revoke its registration. Regarding each State, the adviser must notify the State if it is doing business in the State. If a complaint is filed with the Administrator of a State for a federal covered adviser, the State can still investigate and issue an order; and the State can coordinate an investigation with other State Administrators.

A federal covered adviser with its sole office in State X has 5 clients in State Y and 5 clients in State Z. A client located in State Z files a complaint with the Administrator of State Z, alleging that the adviser misappropriated funds. Which Administrator(s) have authority to take action against the adviser if the complaint is determined to be valid?

The Administrators of States X, Y and Z It makes no difference if the adviser is federal covered; the State can still come after it for violations. The only thing the State can't do is require the adviser to register in the State. The Administrator of State Z has authority to take action because the client who filed the complaint is a resident of State Z. Based on actions taken by an Administrator, other State Administrators can also take action for violations (that means the Administrators of X and Y can pile on!). Finally, the SEC can take action as well (this is a federal covered adviser) based on State Administrator actions, but this is not part of the question.

During the past year, an agent of a registered broker-dealer has offered partnership units to wealthy investors in a private placement. The agent finds that he has been named in a civil lawsuit filed by one of the buyers of the private placement units, claiming that untrue statements were made by the agent in connection with the sale of the issue. Which of the following is a defense against the buyer's claim that is most likely to be upheld by a court of law?

The agent can claim that he took reasonable care to ensure that no untrue statements were made at, or before, the sale of the securities and that the agent did not, and could not, know of the untrue statement The agent is being accused of making untrue statements when selling a security to a customer. Making untrue statements of material fact or omitting statements of material fact when selling securities is fraudulent. However, if the agent can show that he took reasonable care to ensure that no untrue statements were made in connection with the sale of the security and that the agent did not, and could not, know of the untrue statement, then the court will reject the claim of the customer. This is the only defense of the 4 choices offered that addresses the customer's claim. The other defenses offered do not address the customer's claim (e.g., the suit is frivolous; the customer is wealthy and knew what he was doing, etc.)

An investment adviser representative who is both located and registered in New York State has clients in Florida. The State Administrator of Florida, located in Tallahassee, has subpoenaed the representative to testify in Tallahassee. The representative tells her manager about this and the manager tells her to ignore it, because she is located in New York and only New York can issue a subpoena. Which statement is TRUE?

The agent must comply with the subpoena and show up in Tallahassee on the date so ordered A State Administrator has jurisdiction over transactions that occur in his State. Even though this representative is located in New York, because the firm has clients in Florida, the Florida State Administrator has jurisdiction over transactions that take place in Florida. The representative must comply with the subpoena to testify, otherwise he or she will be found in contempt of court.

A customer has brought a civil suit against a broker-dealer and an agent for violating the Uniform Securities Act. Two weeks before the court date, the plaintiff dies. Which statement is TRUE?

The civil suit survives the death of the plaintiff If a customer files suit against a broker-dealer, investment adviser or agent alleging a violation of the Uniform Securities Act and the customer dies, the suit lives on! (Hey, we need to keep the lawyers working!)

The Administrator has determined that a registered broker-dealer has been selling unregistered non-exempt securities to customers in the State and has issued a cease and desist order against the firm. Which statement is TRUE?

The firm can petition a court of law in the State to review the order If the Administrator issues a cease and desist order against a broker-dealer, the broker-dealer is compelled to stop the activity that is violating the Act. So, in this case, the broker-dealer must stop selling unregistered non-exempt securities. The Administrator must provide the broker-dealer with an opportunity for a hearing. If, after the hearing, the order still stands, the broker-dealer can request a judicial review of the order - no later than 60 days after the entry of the final order.

After being solicited by an agent of ABC Brokerage, a customer bought 1,000 shares of XYZZ stock (an OTCBB issue) at $15 per share. The stock rapidly declined to $8 per share, and the customer sold the shares. Six months later, the customer received a written offer of rescission from the broker-dealer, stating that the stock had not been registered in the State where the customer lives. Which statement is TRUE about the customer accepting the offer?

The offer must be accepted in writing within 30 days of receipt If an offer of rescission is made to the buyer, then the seller must either accept in writing in 30 days or the offer is void. The seller is offering to refund any loss to the buyer and would only do this if the offer of the securities to the buyer violated State law. Note that the buyer of the securities is not required to still own the securities to accept the offer. Remember that the buyer experienced a loss, and the buyer can sue the seller if the securities were not legally offered in the State. If the buyer accepts the rescission offer, then the buyer will give up the right to sue the seller.

In order for the State Administrator to enter an order revoking or suspending a registration, which requirement MUST be present?

The order must be in the public interest If the Administrator wishes to enter an order suspending or revoking a registration, this action must be in the public interest and the Administrator must believe that a violation of the Act has occurred; or is about to occur.

If a person disagrees with a final order of the Administrator, which statement is TRUE?

The person may petition the court within 60 days of the order If a person disagrees with a final order of the Administrator, he or she must petition the appropriate court within 60 days of the order.

Which of the following falls under the jurisdiction of the Administrator of the State of New Jersey?

The purchase of call options by a customer living in New Jersey via a Nebraska-based broker-dealer's Internet web site An offer of securities made through any medium (such as the Internet), if received by a customer of a State, is subject to that State Administrator's jurisdiction. Since this customer is living in New Jersey, and accessed the Nebraska-based broker-dealer's website, the New Jersey (and Nebraska) Administrator(s) have jurisdiction. Offers of certificates of deposit by banks are not securities and hence do not fall under the Administrator's jurisdiction. The delivery of securities by a depository such as DTCC (Depository Trust and Clearing Corporation) is not subject to the Administrator's jurisdiction - it is the sale of securities that is subject to the Administrator's jurisdiction. Similarly, the redemption of mutual funds is not a sale of securities and the Administrator does not have jurisdiction.

A broker-dealer wishes to protect itself from client lawsuits and includes the following language in its new account agreement: "The client shall hold harmless the broker-dealer, its officers, managers, agents and employees from, and against any and all losses or liability of any nature arising from their gross negligence, or reckless, willfully improper or illegal conduct." Which statement is TRUE about this?

This is not a valid contractual clause because it requires the client to relinquish non-waivable rights This is a hedge clause that seeks to get a waiver of liability for any fraudulent acts made by the broker-dealer or its officers or employees. The Uniform Securities Act prohibits any actions on the part of a broker-dealer, investment adviser, agent or investment adviser representative that operates as a fraud or deceit. If this occurs, both criminal and civil action can be taken by the client. These anti-fraud statutes are violated if a hedge clause makes a client believe that these non-waivable rights of action provided by USA have been waived.

The Administrator can issue all of the following orders EXCEPT:

a court order of incarceration The Administrator can issue orders without giving prior notice. These orders can deny registration to an applicant; suspend registration; revoke registration; and the Administrator can issue a "cease and desist" order against any person for a violation of the Uniform Securities Act that has occurred; or that is about to occur. If an order is issued, the person that is the subject of the order must be given an opportunity for a hearing in State Court if he or she wants to get the order reversed. Note that the Administrator does not have the power to incarcerate anyone; a court order is needed for this. Note that the Administrator does not have the power to enjoin an individual from being in the securities business - again, only a court can order this.

Making an intentional omission of material fact when recommending a security to a customer would be considered fraudulent if:

a reasonable man would attach decision making importance to the omitted information The "reasonable man" test is used by courts in determining if an offer of a security was made fraudulently. Since a fraud is deemed to occur if there was an omission or misstatement of material fact when the offer of the securities was made, the court looks to see if a "reasonable man" would attach decision making importance to the omitted or misstated information. If the answer is yes, then a securities fraud has occurred.

The Uniform Securities Act empowers the State Administrator to conduct an investigation of an investment adviser if the:

act that gave cause to the investigation occurred in the State The State Administrator has jurisdiction over any offers of securities or advisory services that occur with the Administrator's State. There is no requirement for a physical presence in the State - if the adviser solicits or does business in the State, then the Administrator has jurisdiction.

Under the Uniform Securities Act, an advertisement for advisory services published in a local newspaper is:

an offer only in the State where the newspaper is published If an offer is made in a newspaper with a general, regular and paid circulation, it is not considered to be made in the State if the newspaper is not published in the State; or if the newspaper is published in the State, but has more than 2/3 of its circulation outside the State during the last 12 months. Since this is a "local" newspaper, the offer is only made in the State where the newspaper is published.

The Administrator of a State determines that a broker-dealer has violated State law by selling unregistered non-exempt securities and issues a cease and desist order. If the broker-dealer continues to offer these securities in the State, then the Administrator may:

bring action in a court of competent jurisdiction to request an injunction If a cease and desist order is not obeyed, the Administrator has the power to bring action in State court (not Federal court) seeking an injunction. If the court issues an injunction, then if the broker-dealer were to continue selling the unregistered non-exempt securities, the Administrator could petition the court to issue an arrest warrant for the officers and agents of the broker-dealer involved.

An RIA registered in State A is hired by a cruise ship line to offer investment advice to passengers during the cruise. The cruise ship line has obtained a letter from the State Securities Administrator of State A stating that the adviser is authorized to solicit accounts from the passengers from the port of embarkation, which is in State A. The adviser:

can solicit all of the passengers to buy advisory services This is a question right out of left field! Does the State Administrator have jurisdiction over offers of securities and advisory services made on cruise ships docked in that State? The answer would be yes. Of course, once the cruise ship leaves the dock and travels into international waters, then the State Administrator would not have jurisdiction. We have never heard of a State Administrator issuing a letter stating that an RIA is "authorized" to solicit accounts in a State, but since this is what is given in the question, then it would be OK. This is an awful question!

Unintentional violations of the Uniform Securities Act that are considered to be a misdemeanor subject that person to:

civil liability only Unintentional violations when offering or selling a security result in Civil Liability under the Act. There are no Civil Penalties. Willful violations of the Uniform Securities Act can be a felony and can result in Criminal Liability and Criminal Penalties.

Federal law says that State law can never supersede Federal law. A former employee of a federal covered adviser reports to the State Administrator that the investment adviser tears up written customer complaints that allege fraud. The State Administrator can:

conduct an audit of the adviser's books and records The Uniform Securities Act allows inspections to be coordinated between the State and the SEC. Even though this is a Federal Covered Adviser, the local "cop on the beat" (the State Administrator) has the power to conduct an inspection or audit and can take action based on the results of that audit. NSMIA (National Securities Markets Improvement Act) states that books and records cannot be required to be kept by the Administrator if there is applicable Federal law - which in this case is the Investment Advisers Act of 1940. The Administrator can issue a "cease and desist" order against the adviser; but does not have the power to imprison the adviser (only a court can order this).

Under Uniform State law, civil liability exists in all of the following circumstances EXCEPT when:

customer margin securities are commingled with those of other margin customers There is no prohibition on commingling one customer's securities with those of other customers - this is just fine. The prohibition is on commingling customer securities with proprietary (firm) positions. Unregistered agents cannot sell any securities (exempt or non-exempt) in a State, so Choice B is a violation. Choice C is clearly a violation - agents cannot make misleading statements to induce a purchase or sale. Offers of unregistered non-exempt securities that result in sales are also violations (for example, an offer of unregistered common stock (a non-exempt security) is not permitted in a State unless the transaction is exempt).

The anti-fraud provisions of the Uniform Securities Act would NOT apply to the sale in the State of:

fixed annuities by an insurance company Anti-fraud questions are simple - the anti-fraud rules apply to everyone and everything! However, the Uniform Securities Act only applies to fraud involved in the sale of securities. It does not apply to fraud involved in the sale of a pure insurance product - then that State's insurance laws apply. A fixed annuity is an insurance product and is not a security. In contrast, a variable annuity is defined as a security, since the underlying separate account funding the contract is invested in mutual funds. Finally, even though municipal bonds are an exempt security, fraud in the sale of any security, whether exempt or not, is covered under the Uniform Securities Act.

If it is in the public interest, the State Administrator may deny the registration of a person for all of the following reasons EXCEPT the applicant:

has insufficient experience Lack of experience alone is not sufficient reason for an Administrator to deny registration to a person. If the person is both unqualified and lacks experience, then registration may be denied. Of course, registration will be denied if the person has willfully violated the Uniform Securities Act; is financially insolvent; or has not paid the required fees.

Regarding the authority of State Administrators during an investigation, they:

have the power to subpoena witnesses A State Administrator has the authority to administer oaths and to subpoena witnesses during an investigation. They can do so both inside their State and outside their State. They cannot issue an injunction - this can only be done by a court of law. They may suspend or revoke a registration - but only upon giving the individual or firm, that is subject to the order, notice and the opportunity for a hearing.

The Administrator is empowered to conduct an investigation:

if it appears that a violation will occur or has occurred The Administrator is empowered, under the Uniform Securities Act, to conduct an investigation if it appears that a violation of the Act has occurred; or is about to occur. The Administrator can investigate anyone within that State; or anyone who has made an offer into that State from anywhere else.

Under the Uniform Securities Act, the Administrator is empowered to make, amend or rescind any provision of the Act:

if the action is necessary and in the public interest The Uniform Securities Act allows the Administrator to make, amend, or rescind any provision of the Act, if the action is necessary and in the public interest. No prior approval of NASAA or the SEC is required. The only portion of the Act that the Administrator cannot change is the one that defines exempt securities (such as U.S. Government bonds, municipal bonds, etc.)

The Administrator of State X receives a complaint from a customer of an Investment Adviser that is registered in State X, claiming that the investment adviser stole funds. The initial response of the Administrator of State X will be to:

investigate the complaint This one is pretty simple. If a State Administrator receives a complaint about a BD or IA, it will first investigate to see if the complaint has validity. As part of this investigation, the Administrator will require evidence from the customer supporting the claim, but this not the first step that is taken - which is what is asked in the question. If the Administrator finds that the claim is valid, then the Administrator may issue a cease and desist order against the investment adviser and can refer the case to a court of law, since theft is a criminal offense.

The Administrator of State A receives a complaint about an advertisement placed by a broker-dealer. The complaint claims the advertisement stated that: "Any investment made with XYZ Brokers would double in 3 years." XYZ Brokers is located in State B and the advertisement was created in State B and distributed in States A and B. The FIRST action that will be taken by the Administrator of State A is to:

investigate the complaint This one is pretty simple. If a State Administrator receives a complaint about a BD or IA, it will first investigate to see if the complaint has validity. If it does, then the Administrator of State A may issue a cease and desist order against XYZ Brokers and can also refer the matter to the Administrator of State B, where XYZ Brokers is based. The Administrator cannot enjoin XYZ Brokers from publishing future advertisements in State A; this can only happen if the Administrator petitions a court of law to take this action and the court does so.

A Web site created by a broker-dealer will NOT be considered to be an offer of securities in a State as long as all of the following conditions are met EXCEPT the communication:

is filed in advance of use with the state Administrator As long as a web site is limited to "general" information and does not attempt to induce customers to effect securities transactions, then an "offer" is not being made in the State. In addition, the Web site must show a legend that the broker-dealer can only transact business in the State if it is first registered in that State. Finally, any follow-up "individualized" responses to customers involving securities transactions require that the broker-dealer and its agents be registered in the State. There is no requirement to file the Web site with the state Administrator in advance of use.

No civil liability exists under the Uniform Securities Act if a(n):

issuer offers to sell a security in violation of the Act, but no sale occurs Civil liability is incurred under the Act if a person sells a security resulting in a violation of the Act. If no sale occurs, then there is no civil liability (Choice A). If a sale occurs, then there is civil liability.

If a broker-dealer's net capital falls below the minimum requirement for registration in a State, the Administrator has the power to:

make a proper showing to a court of law to appoint a receiver over the firm's assets The Uniform Securities Act gives the Administrator the power to bring an action in a court of law to enforce compliance with the Act. A broker-dealer that does not maintain minimum net capital is not in compliance. The Administrator must make a showing to a court of law (that is, make the case in front of a judge) that the firm is in violation of State law and petition the court to appoint a receiver in the bankruptcy of the broker-dealer

An agent sells unregistered non-exempt securities to a customer, and has the customer sign a statement that he is aware that the securities are unregistered. The agent receives a commission for the trade. Under the Uniform Securities Act, this transaction is:

null and void under the Act, subjecting the agent to civil liabilities The sale of unregistered non-exempt securities is a violation of the Act which incurs civil liabilities. The transaction is null and void and the seller is obligated to buy back the security at the original cost plus 6% interest.

The State Administrator would NOT deny the registration application of an Investment Adviser because the IA was the subject of a(n):

personal bankruptcy proceeding 4 years ago that relieved the individual from the claims of all unsecured creditors as of the date of the bankruptcy filing Registration as a broker-dealer, agent, investment adviser or investment adviser representative will be denied if that person was convicted of any misdemeanor involving securities or money within the past 10 years; or if that person was convicted of any felony within the past 10 years. Thus Choice B will result in denial of registration. If that person was found to have violated the securities or commodities laws within the past 10 years, then registration will be denied. Thus, Choices A and C will result in denial of registration. If that person is insolvent, then registration will be denied. However, just because an individual filed for bankruptcy 4 years ago, this does not mean that registration will be denied. Any bankruptcy that occurred within the past 10 years must be disclosed, but it is not an automatic disqualifier from registration. After all, the individual might have emerged from bankruptcy a reformed person and is now solvent. (Of course, if that individual were still in the bankruptcy proceeding, then he or she would be "insolvent" and registration would be denied, but this happened 4 years ago.)

A registration application filed by a new investment adviser with the State Administrator details that the adviser "will solely employ contrarian indicators and other non-traditional factors, including market psychology and investor sentiment measures to select investments." Under the Uniform Securities Act:

registration cannot be denied unless such an order is in the public interest and the applicant is subject to statutory disqualification The Administrator cannot deny a registration application of a broker-dealer, investment adviser or their agents unless it is in the public interest and the applicant is subject to "statutory disqualification" as detailed in the Uniform Securities Act. The Administrator will deny registration if the applicant has: filed a misleading application, which is interpreted as a materially incomplete application or one that is misleading with respect to any material fact. willfully violated the provisions of the Act. been convicted of a misdemeanor involving any aspect of the securities business; or any felony; within the past 10 years. been enjoined by any court from engaging in or continuing to conduct any aspect of the securities business. been suspended or had its registration revoked by any State or the Securities and Exchange Commission within the past 10 years. engaged in dishonest or unethical business practices. been found to be insolvent, defined as not being able to meet obligations as they mature. been found to be unqualified due to lack of training, experience, or knowledge of the securities business. However, lack of experience alone is not sufficient to deny registration. failed to reasonably supervise subordinates. This provision applies to broker-dealers and investment advisers. This does not apply to agents. The fact that this adviser will use "non-traditional" methods to select investments has no bearing. As long as the adviser discloses the methodology used to clients, all is OK! Also note that Choice D would be one of the listed reasons to deny registration, but Choice C covers all of the possible reasons to deny registration and thus is the better choice.

A broker-dealer that is not registered in a State sells non-exempt securities in non-exempt transactions to customers located in that State. That State's Administrator will:

require the broker-dealer to make an offer of rescission to each purchaser in that State To sell non-exempt securities in a given State, the broker-dealer, its agent, and the security, must all have been registered in that State (unless an exemption was available). The action normally taken by the Administrator is to require the broker-dealer to make an offer of rescission - that is, make the firm refund the money + interest + attorney's costs. Since this sale already happened, the Administrator will not retroactively require the firm to register in that State; but the Administrator will require registration for any future transactions that occur in the State. (Note that we are assuming that the illegal action taken by the broker-dealer was not intentional in this case - if it was intentional then the Administrator might institute a proceeding in a court of law alleging criminal intent).

Under the Uniform Securities Act, the Administrator has the power to issue an order:

suspending the registration of the agent Only a court of law can enjoin someone from being in the securities business; can require civil restitution; and can impose criminal penalties. The Administrator has the power to issue an order (that's all he can do) that suspends, denies or revokes registration; and the Administrator can issue a cease and desist order.

All of the following statements are true about an offer of rescission EXCEPT:

the customer must sign a waiver of non-compliance to accept the offer If an offer of rescission is made on the inadvertent sale of a non-exempt security that should have been registered under the Act, the offer can only be made prior to the institution of a lawsuit alleging a securities violation. An offer must be made to buy back the security at the original purchase price, plus the customer must be paid interest at the legal rate in the State (6%), less any dividend or interest income received from that security. There is no requirement for the customer to sign a waiver of non-compliance to accept the offer. Any offer of rescission must be accepted within 30 days of the offer.

Transactions that violate the Act are voidable by the purchaser. The seller is obligated under civil liabilities to pay the investor the original cost of the securities plus 6% interest.

the original cost of the securities interest computed at 6% on the amount invested, less any income received from the security any attorney's fees expended by the purchaser A purchaser may void a securities transaction if the trade is contrary to the provisions of the Act. Civil liabilities apply and the purchaser must be paid the original cost of the security plus 6% interest and any attorney's costs by the seller.