Ch 8 USA Admin

Question 1

What does administrator have jurisdiction over?

Answer 1

• Any offer or sale that is made, received, or accepted in their state. A state where the security was just paid for does not have jurisdiction
• For mail (2 states max), it only includes the state it originated from and was received. Directed or Receipt state does not have jurisdiction if it was forwarded
• For tv or radio (1 state), only the state where camera and microphone located unless someone outside the state hears it, it becomes federal so no state jurisdiction
• For newspaper or magazine (1 state), state it was published in unless more than 2/3 of circulate is outside the state in which case no states have jurisdiction
• Includes warrant
• Includes gifts only if they are of assessable stock (rare) which allows a company to demand more capital from existing shareholders
• Does not include: loan of stock, exchange of securities due to merger/reorg / bankruptcy, stock dividend

Question 2

Administrator powers and when they can use them:

Answer 2

Powers
- deny, suspend or revoke registration of firm or employee
- Bar an employee from association with any registered firm
- Limit activities (eg no options trading)
- Can NOT levy fines or prison sentences directly. Judge does that after court. Similar to how you don’t pay a cop when you get a ticket
Use
- obvious reasons like providing false info and gritting misdemeanor or felony for securities industry (within last 10 years)
- Includes foreign security law violations in last 5 years
- Insolvency
- Lack of knowledge, experience, AND training
- Can cancel registration if individual can’t be found or has died or is incompetent

Question 3

How admin enforces USA

Answer 3

• Has inspectorial powers: admin can go outside state for investigations and initiate criminal liability
• Can issue subpoenas
• Can Issue cease and desist: when they feel a law has been violated. Can be appealed within 60 days but still can violate the order in the meantime
• Can seek an injunction but cannot issue it. Also can’t issue an enjoining order

Question 4

Registrant rights when denied, revoked or suspended, or when registrant withdraws registration

Answer 4

• notified in writing with findings of fact
• Has 60 days to decide whether to appeal
• If requested, receive a hearing in 15 days
• When withdrawn, admin had 1 year from effective date (30 days from filing) to institute proceedings

Question 5

What client can sue for in civil court and statute of limitations:

Answer 5

• Original consideration (purchase price) + interest + reasonable court and attorney fees - income received from the security/advice
• 3 years from occurs or 2 years from discovery, whichever is sooner

Question 6

Letter of rescission

Answer 6

• Firm realizes they screwed up (eg accidentally sold a security that wasn’t registered in that state) and tries to settle with client first by offering: to buy back the security + interest - any income received.
• Client has 30 days to respond. If no response, they waive the right to sue
• Doesn’t really work if client no longer has the security.

Question 7

Criminal penalties and statute of limitations. Differ from fed

Answer 7

• Brought by state
• Must be a willful violation of USA
• 3 years of prison, $5000 fine, or both
• If agent had no knowledge of rule, may avoid prison sentence
• 5 year statute of limitations
• Note that federal violations can have a $10K fee and/or 5 years prison