9.14 - Actions to be Taken by the Administrator
An application has been filed with the Administrator of State A for registration as a broker/dealer by Assured Success Investments (ASI), a broker/dealer registered in States B, C, and D. While the application is pending, a lawsuit against ASI is filed in civil court in State B. The effect of this would be A) ASI's application in State A would proceed as normal B) ASI's application in State A would be put on hold C) ASI's application in State A would be denied D) ASI's registration in State B would be suspended
Answer: A The filing of a lawsuit would have no immediate effect on a broker/dealer's application for registration. After all, one is innocent until proven guilty. Even a guilty verdict might not lead to any action, because we don't know whether the lawsuit is connected to the brokerage activities.
Under the USA, a state securities Administrator can: start an investigation against a registrant even if a violation has not yet occurred. subpoena witnesses living in the Administrator's state only. subpoena witnesses living outside the state. begin an investigation only after a violation of the act has occurred. A) I and III. B) I and II. C) II and III. D) II and IV.
Answer: A Under the USA, the Administrator has a broad investigative authority and may begin an investigation against a registrant before a violation has occurred, and may subpoena witnesses in any state.
On determining that a registrant or applicant for registration is no longer in existence or has ceased doing business as either an agent or a broker/dealer, the Administrator may: A) issue a cease and desist order. B) cancel the registration or application. C) cancel or suspend the registration. D) revoke the registration.
Answer: B A registration may be canceled if the registrant cannot be located, is found mentally incompetent, or has disbanded. This is known as non-punitive termination of registration. Suspension, revocation, and a cease and desist order are for violations of the Uniform Securities Act.
Under the Uniform Securities Act, as a result of a hearing, the disciplinary actions that may be taken by the Administrator include which of the following? Revocation of a registration. Bar from employment with any registrant. Restriction on a registrant's performance of any activity in the advisory or brokerage business. A) I and III. B) II and III. C) I, II and III. D) I and II.
Answer: C Among the actions the Administrator is authorized to take against a person's registration are revocation, bar or restriction of activity.
Under the Uniform Securities Act, the Administrator may designate another officer to: A) issue a cease and desist order. B) set recordkeeping requirements. C) serve subpoenas. D) grant registration exemptions.
Answer: C An official designated by the Administrator may serve subpoenas since that is basically an administrative function; however, an Administrator may not designate another official to grant registration exemptions or issue cease and desist orders. The recordkeeping requirements are set by law and cannot be altered by the Administrator.
In conducting investigations, the Administrator may: require a person to file a statement in writing and under oath. publish information of any violation over the vigorous objections of a violator. make investigations both inside the state and in other states to determine whether violations of the USA have occurred in his state. make investigations outside the state to determine whether violations of the USA have occurred in that other state. A) II and III. B) I, II, III and IV. C) I, II and III. D) I and II.
Answer: C The Administrator may require written statements under oath, publicize violations, and investigate anywhere necessary to determine whether or not a violation of the act took place in his state. However, he is not authorized to conduct investigations in other states to determine whether a violation of the USA has occurred in those states.
Under the Uniform Securities Act, which of the following are cause for disciplinary review action by the state securities Administrator? Joe files an application for registration as an investment adviser and omits the fact that he was convicted of fraud 12 years ago. Tom, a registered investment adviser, fails to disclose that he recently filed for bankruptcy protection. The ABC Advisory Group, a registered investment adviser, employs several investment adviser representatives as independent contractors. Ed is suspended from conducting business in the securities industry for a period of 6 months by FINRA (NASD). A) I, II and IV. B) I and II. C) II and IV. D) III and IV.
Answer: A Even though the Administrator's power to deny a registration is limited to convictions within the past 10 years, any conviction of a felony or securities-related misdemeanor, regardless of when it happened, is material information and must be disclosed or else the application will be deemed to be incomplete. Failure to disclose a suspension by FINRA (NASD) or a bankruptcy filing is cause for disciplinary action on the part of the Administrator. Investment advisers may employ investment adviser representatives as independent contractors.
Superb Wealth Opportunities (SWO) is a broker/dealer registered with the SEC and 10 states. Recently, the SEC has completed an investigation of SWO's recordkeeping practices and has determined that they are not in accordance with SEC Rule 17a-4. If, as a result of a hearing, SWO is fined, A) it is likely that at least one of the states would revoke SWO's registration B) the Administrator of the state where SWO maintains its principal office could investigate SWO to determine if their recordkeeping requirements were violated C) no state could take action under the "double jeopardy" provisions of the law D) no state could take action, because only the SEC would have jurisdiction
Answer: B Even though no state can enforce more stringent recordkeeping rules than those of the SEC, a broker/dealer can still be subject to state action if the rules of the state in which the broker/dealer maintains its principal office are broken. It is the usual case that when the SEC suspends or revokes the registration of a B/D, the states in which that B/D are registered follow suit, but it would be highly unlikely to revoke the registration when the SEC only levied a fine.
An Administrator may deny or suspend a registration in all of the following situations EXCEPT: A) if the registrant has failed to properly supervise agents and investment adviser representatives. B) if the applicant is not qualified on the basis of experience. C) if the applicant was convicted of a misdemeanor involving securities within the last 10 years. D) if the applicant has been the subject of an adverse order entered by the Administrator of another state within the past 10 years.
Answer: B The Administrator may restrict a registration on the basis of lack of training and knowledge, but not for a lack of experience alone. The Administrator may deny a registration if the applicant was convicted of a misdemeanor involving securities within the last 10 years. The Administrator may deny a registration if the applicant has been the subject of an adverse order entered by the Administrator of another state within the past 10 years. Registrations may be suspended if agents or investment adviser representatives are not properly supervised.
Using the powers granted under the Uniform Securities Act, the Administrator would have the right to deny the registration of a broker/dealer: A) if the broker/dealer had agents registered in the state. B) if the broker/dealer's membership in the NASD was revoked because of a violation of NASD rules. C) if the broker/dealer's membership in the NASD was revoked because of a violation of NASD rules, but only if the activity involved was a violation of the Uniform Securities Act. D) if the broker/dealer's net capital only met SEC requirements, but not those of the state.
Answer: B This is tricky because the USA only permits an Administrator to take action against a person convicted of a securities violation in another state if that action would be a violation in his state. However, when the license is revoked on a federal basis, whether through the actions of the SEC or a national SRO like NASD (now FINRA but the exam may still use NASD), it would be cause for denial by the Administrator even when the action involved is not a violation in his state. As long as B/D meets the SEC's net capital requirements, the state cannot impose a higher one.
If the Administrator believes that a violation of the act has occurred or is about to occur, the Uniform Securities Act grants the office the power to: issue a cease and desist order. seek an injunction against the alleged violation. seek to have a receiver appointed over the violator's assets. seek to have the violator make restitution to investors. A) I, II and III. B) III and IV. C) I, II, III and IV. D) I and II.
Answer: C The Administrator has the power to issue cease and desist orders, apply to courts for temporary or permanent injunctions or restitution to investors, or have the court appoint receivers over a violator's assets.
A registered investment adviser has been investigated by the Administrator for fraudulent misrepresentations purportedly made to several clients. If the IA is found to have been in violation of the Uniform Securities Act, this may result in: a $10,000 fine per violation. a receiver being appointed over the adviser's assets. a prison term of 5 years per violation. the requirement that the investment adviser make restitution to the victims. A) I and III. B) III and IV. C) II and IV. D) I and II.
Answer: C The Administrator may appoint a receiver over the investment adviser's assets and require the IA to make restitution to the victim. The maximum fine for a violation of the USA is $5,000 and the maximum prison term is 3 years.
The Administrator has authority to: issue a cease and desist order without a hearing. issue a cease and desist order only after a hearing. summarily suspend a currently effective securities registration upon discovering an officer of the issuer has been convicted of a securities-related crime. sentence violators of the USA to three years in prison. A) II and III. B) II and IV. C) I and III. D) I and IV.
Answer: C The Administrator may issue a cease and desist order without a hearing. Sentencing is only done by a court. The Administrator may summarily suspend a security's registration pending a final determination of a proceeding.
Under the Uniform Securities Act, the Administrator may: gather evidence within its state. gather evidence in any state. subpoena witness. require evidence be produced from outside the state. A) I and II. B) I and III. C) II and III. D) I, II, III and IV.
Answer: D An Administrator has the power to gather evidence both within and outside of the home state as well as subpoena evidence and witnesses in any state.
Under the Uniform Securities Act, the Administrator has the power to: administer oaths. indict offenders. subpoena witnesses. take evidence. A) I and III. B) II, III and IV. C) I, II, III and IV. D) I, III and IV.
Answer: D The Administrator has the power to administer oaths, subpoena witnesses and take evidence. The Administrator also has the power to compel testimony and require the production of books and records. However, while the Administrator is authorized to refer violations for possible criminal prosecution, the actual powers of criminal prosecution belong to others. For example, indicting offenders is the function of a grand jury.
Which of the following accurately describes a cease and desist order as authorized by the USA? A) An order by the Administrator to refrain from a practice of business believed by that Administrator to be unfair. B) An order issued by a federal agency to a brokerage firm to stop an advertising campaign. C) An order issued by a court of competent jurisdiction in the state requiring a business to stop an unfair practice. D) An order from one brokerage firm to another brokerage firm to refrain from unfair business practices.
Answer: A A cease and desist order is a directive from an administrative agency to immediately stop a particular action. The order can come from a federal, state, or judicial body; it is not exclusive to any single body. However, because this question is referring to the Uniform Securities Act, we focus on the actions of the Administrator, not a federal agency. Administrators may issue cease and desist orders with or without a hearing. Courts issue injunctions, usually when the cease and desist order is ignored. Brokerage houses cannot issue cease and desist orders to each other.
An applicant for registration as an investment adviser discloses on Form ADV that it plans to use palm readers to help determine investments most suitable for their clients. Under the Uniform Securities Act, the Administrator: A) may deny applications only on the basis of the limitations of the law. B) is empowered to deny this application. C) will request that the applicant furnish past performance records to determine whether this method of investment analysis has merit. D) will probably turn to the SEC for guidance.
Answer: A A denial of registration must be based on the concept of law. There are stated reasons, such as felony convictions, outstanding injunctions, and insolvency. Although it is required to disclose methods of analysis used, the Administrator is not empowered to pass judgment on them.
Which of the following statements (is)are TRUE? An Administrator can suspend a pending registration on a summary basis. An Administrator may not issue a stop order without prior notice and opportunity for a hearing. An Administrator may cancel a registration for the same reasons he revoked or suspended a registration. A) I and II. B) I only. C) II and III. D) III only.
Answer: A An Administrator can, on a summary basis, suspend a pending registration but may not issue a stop order without a prior notice and an opportunity for a hearing. Cancellation is different from revocation and is not a result of disciplinary action; it occurs when a registrant no longer exists, ceases to do business, is declared mentally incompetent, or cannot be located.
The Administrator may impose disciplinary action against a registrant when the registrant has: violated the provisions of federal securities law. engaged in unethical practices, even if no law was broken. failed to properly supervise an employee who committed prohibited practices as defined by the act. failed to lend money to a very good client. A) I, II and III. B) I and III. C) II and IV. D) II, III and IV.
Answer: A Disciplinary action may be imposed by a state Administrator for violations of federal securities regulations, improper supervision, and unethical practices committed, whether or not a law was broken. Even in those few cases where a broker/dealer or investment adviser is permitted to lend money to a client, there is never a case where they are obligated to do so.
Included among the powers of the Administrator is the ability to: A) request the court to appoint a receiver to freeze the bank accounts of a broker/dealer who is the subject of an injunction. B) arrest an agent who violates the USA. C) deny the registration of a securities professional if doing so is in the public interest. D) sentence an investment adviser representative who has been convicted of fraud to a prison sentence, not to exceed three years.
Answer: A If a temporary or permanent injunction is issued against any securities professional, upon request of the Administrator, a receiver or conservator may be appointed over the defendant's assets. The Administrator cannot arrest, but can seek a warrant. In order to deny a registration, not only must it be in the public interest, but there must be some other issue, such as insolvency, incomplete application, etc. Although the maximum prison sentence under the USA is three years, it is the courts that do the sentencing, not the Administrator
Under the Uniform Securities Act, which of the following statements are TRUE about the authority of an Administrator? A cease and desist order may be issued prior to a hearing. A cease and desist order may be issued after a hearing. A cease and desist order is valid for a maximum of 30 days. A) I and II. B) I only. C) II and III. D) I, II and III.
Answer: A In issuing a cease and desist order, the Administrator may provide prior notice and hearing or may issue the order without prior notice or hearing (summarily). There is no time period associated with the order.
An Administrator may summarily suspend a registration pending final determination of proceedings under the USA. However, the Administrator may NOT enter a final order without: appropriate prior notice to the registrant. an opportunity for a hearing. findings of fact and conclusions of law. prior written acknowledgment of the registrant. A) I, II and III. B) I only. C) I and II. D) II, III and IV.
Answer: A Prior to the entry of a final order, the Administrator must provide appropriate prior notice to the registrant, provide the opportunity for a hearing, and present findings of fact and conclusions of law. A registrant is not required to provide written acknowledgement before an order is issued.
The Administrator of a state's securities department strongly believes that the registration statement for a security contains a substantial amount of misleading information and that investing in the security is likely to cause immediate and egregious harm to its investors. Under the following circumstances, the Administrator may: A) issue a stop order denying or revoking the registration statement, but must provide the applicant with the opportunity for a hearing within 15 days of the written request for such hearing. B) not revoke or deny the registration statement until a hearing takes place. C) revoke the registration statement, denying the applicant a hearing for an unlimited amount of time. D) revoke or deny the registration statement and must schedule a hearing within 30 days of issuing the summary process order.
Answer: A The Administrator may deny or revoke the registration statement but must provide the applicant with an opportunity for a hearing within 15 days of a written request for such hearing.
Under the Uniform Securities Act, which of the following concerning the withdrawal of an agent's registration is NOT true? A) Absent any disciplinary proceedings, withdrawal is effective 60 days after application. B) Absent any disciplinary proceedings, withdrawal is effective 30 days after application. C) At the Administrator's discretion, disciplinary proceedings may delay effectiveness of a withdrawal application indefinitely. D) Disciplinary proceedings may be taken against an agent after the agent's withdrawal is effective. Click for Answer and Explanation
Answer: A Under the USA, withdrawals of registration are generally effective on the 30th day after filing, unless a disciplinary action is instituted. The Administrator may institute a revocation or suspension proceeding within 1 year after an agent's withdrawal has become effective.
If the Administrator has summarily suspended an investment adviser representative's registration, the registrant may request a hearing by written request and the hearing will be granted within: A) 15 days. B) 30 days. C) 45 days. D) 60 days.
Answer: A When an Administrator summarily suspends a registration, the registrant has a right to a hearing if the request is made in writing. The hearing must be granted within 15 days of receipt of the request. Registration of professionals takes place at noon of the 30th day and an appeal for review of an Administrator's order must be filed within 60 days.
Under the Uniform Securities Act, as a result of a hearing, the disciplinary actions that may be taken by the Administrator include which of the following? Permanent revocation of a registration. Bar from employment with any registrant. Restriction on a registrant's performance of any activity in the advisory or brokerage business. A) I and III. B) II and III. C) I, II and III. D) I and II.
Answer: C Once the registrant is found guilty at a hearing, the Administrator is authorized to take any or all of the above actions against a person's registration.
An Administrator may deny or revoke a security's exemption: A) if the Administrator, in a court of competent jurisdiction, proves that a security does not qualify for an exemption. B) if the Administrator determines that an exemption applicable to federal covered securities is inconsistent with state securities law. C) for a federal covered security if its issuer is in violation of state law. D) without a hearing if the issuer is given an opportunity for a hearing after the revocation.
Answer: D An Administrator may deny or revoke a security's exemption without a hearing if the issuer is given an opportunity for a hearing after the revocation. The issuer requesting an exemption must prove the exemption; this is not the responsibility of the Administrator. The Administrator may not revoke exemptions of federal covered securities.
Under which of the following circumstances can an Administrator initiate a suspension or revocation proceeding against a broker/dealer registered in the state? On discovery that the broker/dealer's license had been suspended in another state. On the conviction of a violation of the Securities Exchange Act of 1934. Two years after the withdrawal of registration by the broker/dealer. On the basis of facts known by the Administrator at the time of the broker/dealer's initial registration. A) I and III. B) II and III. C) II and IV. D) I and II.
Answer: D An Administrator may initiate suspension proceedings against a broker/dealer on discovering that its registration has been suspended in another state and on conviction of a violation of the Securities Exchange Act of 1934. The Administrator may not initiate revocation proceedings against a broker/dealer later than 1 year after the broker/dealer has withdrawn its registration. The Administrator may not suspend or revoke a broker/dealer's registration at a subsequent time on the basis of facts known by the Administrator at the time of the initial application.
Which of the following statements would justify an Administrator's denial of a security's registration? The order is in the public interest. The company has not been paying dividends. The underwriter's compensation is excessive. A) I only. B) I and II. C) III only. D) I and III.
Answer: D An Administrator's denial of a security's registration must be in the public interest. The underwriter's compensation may not be excessive.
A registrant's registration may be canceled by the Administrator: A) upon the order of a court of competent jurisdiction. B) as long as there is opportunity for a hearing. C) when the registrant has been found in violation of the Uniform Securities Act. D) if the Administrator is unable to locate the registrant.
Answer: D Cancellation is non-punitive - nothing wrong was done. But, when the Administrator is unable to locate the registrant, or the registrant is declared mentally incompetent or is deceased, registration is canceled.
Causes listed in the Uniform Securities Act that could lead to the revocation of the registration of a broker/dealer would include: the conviction of a principal officer for a securities related crime. the firm had no employees. the firm was unable to meet its obligations as they came due A) I and II. B) I, II and III. C) II and III. D) I and III.
Answer: D Conviction of a principal officer of a broker/dealer could be a cause for suspension or revocation of that broker/dealer's registration. Insolvency is another cause, but the USA does not have any requirements relating to the number of employees of a broker/dealer.
Linda is applying with State A to become a registered investment adviser. She has never practiced as an investment adviser before, but she was a municipal bond broker for many years. Seventy-five months ago, Linda was barred from municipal bond activities by the MSRB. This would or could: A) have no impact on her registration because she had no investment adviser violations. B) have no impact on her investment adviser registration because municipal bonds are exempt securities. C) make the SEC refuse to review her investment adviser application on Form ADV. D) possibly cause her registration to be denied.
Answer: D Generally, disciplinary action in conjunction with any professional securities or commodities activity resulting in a revocation or bar within the 10-year period preceding application, will cause the application as an investment adviser to be refused under statutory denial. However, the Administrator will review the application and the circumstances surrounding the action.
Under the Uniform Securities Act, an Administrator may deny, suspend, or revoke the registration of a security if: it is in the public interest. there is cause for action as stipulated in the Uniform Securities Act. the issuer reports an operating loss for more than four quarters. it is a preferred stock and defaults on its dividend. A) I and IV. B) II and III. C) III and IV. D) I and II.
Answer: D If the Administrator finds any of the following grounds, the Administrator may issue a stop order denying the effectiveness of a registration or may suspend or revoke the effectiveness of a registration if it is in the public interest. To do so, the Administrator must have grounds for action, and it must be in the public interest. Grounds for action include (1) willful violations of the act; (2) illegal business activity by the issuer; (3) an offering that has defrauded or would defraud purchasers; (4) unreasonable compensation by promoters, underwriters, or sellers; (5) registration requirements not being met; and (6) nonpayment of filing fees.
Under the Uniform Securities Act, an Administrator investigating violations: A) may subpoena records only with court approval. B) must maintain the confidentiality of all records. C) may subpoena records but may not compel individuals to testify. D) may appoint an officer who has the power to subpoena records, administer oaths, or require production of documents and books.
Answer: D Public or private investigations may be conducted by the Administrator to determine whether violations of the act are about to take place or have already occurred. These investigations may take place inside or outside the state. In conducting the investigation, the Administrator, or any officer designated by him, may subpoena records or compel testimony from individuals.
The Administrator has a number of punitive powers. If, while registered, you did something improper, the worst thing that the Administrator could do to you is: A) cancel your registration. B) deny your registration. C) suspend your registration. D) revoke your registration.
Answer: D Revocation is the strongest action a regulator can take.
Which of the following statements is(are) TRUE about the investigative power of the Administrator under the Uniform Securities Act? The Administrator may conduct public or private investigations to determine if violations are about to occur or have occurred. Persons could find themselves subject to contempt of court charges for failing to obey a subpoena issued by an Administrator. The Administrator may proceed against an entire firm for the actions of any principal of the firm. A) I only. B) II and III. C) III only. D) I, II and III.
Answer: D The Administrator may conduct public or private investigations in pursuing suspected or actual violations and may do so within or outside the state. Administrators may issue subpoenas in conducting their investigations, and if persons fail to obey them, the Administrator may apply to the courts for a court order. If the persons then fail to obey the court order, they may be subject to contempt of court charges. The Administrator may take such action against an entire firm as a result of the actions of any principal of the firm.
An Administrator has specific authority under the USA to: suspend the registration of a security if the suspension is in the public interest and the offering has excessive underwriting fees. issue emergency injunctions to prevent a violation of the act. enforce subpoenas in the state at request of an Administrator of another state for alleged violations that occurred in another state. require that the proceeds from an offering be held in escrow until issuer receives a certain percentage of the sale of the securities offered. A) I only. B) II and III. C) I, II and IV. D) I, III and IV.
Answer: D The Administrator may impound the proceeds of an offering in an escrow account until the issuer receives a specified amount. The Administrator may also suspend a security's registration if excessive fees or commissions are charged as part of the offering. State Administrators have the authority to cooperate with each other in enforcing the provisions of USA by ensuring that the subpoenas from other states are enforced. Injunctions are judicial orders that can only be issued by a court of law, not by an administrative agency such as a state securities Administrator.
Under the Uniform Securities Act, an Administrator has which of the following powers? The power to seek court orders for the payment of restitution against any violators of the act. The power to issue a cease and desist order with or without prior hearings. The power to impose fines for violations of the act up to $5,000. A) I only. B) II only. C) I, II and III. D) I and II.
Answer: D The Administrator may issue cease and desist orders to stop persons from violating the act, with or without a prior hearing, as long as notice is given that a hearing will be granted upon written request. The Administrator may apply to a court for a temporary or permanent injunction, restitution to investors, or to have the court appoint a receiver for a violator's assets; or refer charges to the state attorney general or district attorney for prosecution. The Administrator does not have the power to invoke criminal penalties (3 years in jail and/or a $5,000 fine under the Uniform Securities Act); that power is reserved for the courts.
An individual has filed an application for registration as an agent with a broker/dealer in this state. Which of the following would be ample cause for the Administrator to deny the registration? Bankruptcy filing by the individual five years and four months ago. Conviction for a felony committed less than ten years ago. Conviction for a misdemeanor involving the securities industry less than eight years ago. The applicant is not a legal resident of this state A) I and II. B) I and IV. C) II and IV. D) II and III.
Answer: D The Administrator will deny an application for registration if the applicant has been convicted of a securities-related misdemeanor or any felony within the past ten years. Bankruptcy is not a cause for denial, and one does not have to be a resident of a state in order to become licensed in that state.
Under the Uniform Securities Act, in which of the following circumstances may the Administrator take action against an advisory firm? Nine years ago, the Administrator of another state found that the president of the firm violated the securities laws of that other state. The firm has liabilities that exceed its assets. A minority shareholder with no management role in an investment adviser organized as a corporation cannot meet his financial obligations as they come due. A) I only. B) II and III. C) I, II and III. D) I and II.
Answer: D Violation of another state's securities laws within the past 10 years by the president of the firm might be cause for action against an investment adviser. So is insolvency, defined as having liabilities in excess of one's assets or the inability to meet financial obligations as they come due. However, the personal financial situation of a minority, nonmanaging shareholder does not have a bearing on the financial situation of a corporate firm.