Chapter 3: Remedies and Administrative Provisions - C. Penalties and Liabilities

Question 1

Criminal liabilities and penalties

Answer 1

Criminal liability exists if a person is found to have willfully violated any order or provision of the Uniform Securities Act (USA). A willful violation is classified as a felony under the Act. The maximum penalty under state law for each violation under state law may be:

• $5,000 fine;
• 3 years in prison; or
• Both.

If a person can prove that they had no prior knowledge of the rule or order violated, the person cannot be imprisoned, but can still be fined. In all such disciplinary matters, a person must be given an opportunity for a hearing within 15 days of a request.

It is important to know the difference between state and federal penalties. The maximum penalty for criminal liability that can be imposed under federal law is

• $10,000; or
• 5 years in prison; or
• Both.

Question 2

Summary: Statute of Limitations and Penalties

Answer 2

Statute of limitations:
- Civil:
- State: First of 3 years from volation or 2 years from discovery
- securities act of 1933: first of three years from violation or one year from discovery

• Criminal: 5 years from the date of the violation

Penalties:
- Civil: Determined through civil court proceeding
- Criminal: State Law - 3 years and/or $5k
- Criminal: Federal Law - 5 years and/or $10k

Question 3

Statue of limitations for criminal charges

Answer 3

The statute of limitations for criminal actions is 5 years from the date of the alleged violation. The state administrator has the authority to vary the amount of the fine, the length of the prison sentence, and the period of time for the statute of limitations.

Question 4

Civil liabilities

Answer 4

If a person is found in violation of the Act without willful intent, then no fraud exists, and civil liabilities apply. With a civil liability issue, the transaction is considered null and void.

The main intent behind civil liabilities is to recover the customers’ funds. Civil penalties are handed down only through a civil court proceeding.

Question 5

Recovery

Answer 5

If the customer was the purchaser of a security, the customer is entitled to recover all of the following:

• The original purchase price of the security;
• Costs and reasonable attorney fees; and
• Interest on the money invested, computed from the purchase date, at the legal interest rate (6% in most states), minus any income already received from the investment.

If a customer purchased a security but no longer owns it, the customer is still entitled to recovery in the above manner. If a customer purchased a number of securities that were sold in violation of the Act, the customer is entitled to retain the profitable investments and still seek recovery in the above manner for the unprofitable investments.

Question 6

Recovery from investment advisers

Answer 6

If a person who dispenses investment advice for a fee is found in violation of the Act, the customer is entitled to recover all of the following:

• The cost or fee for the advice plus interest at a rate specified by the state, from the date of payment;
• Costs and reasonable attorney fees; and
• Any loss due to the advice, minus any income received from the advice.

If a contract with an investment adviser is found to be in violation of a provision of the Act, the contract is considered null and void and is unenforceable against the customer.