Unit 12 | Remedies & Administrative Provisions Flashcards
Jane is an agent registered in States A and B. While sitting in her office in State A, she contacts a client who lives in State B with a recommendation to buy ABC stock. The client agrees to make the purchase. Jurisdiction here would belong to
A. the State A Administrator.
B. the State B Administrator.
C. both the State A and State B Administrators.
D. neither Administrator because this is an existing client.
C. In this case, it would be the Administrators of both States A and B. Why is that? Remember that the Administrator has jurisdiction over any offer that originated in his state, and this offer originated from Jane in State A. Recall that the Administrator has jurisdiction over any offer accepted in his state, and this client lives in State B. The client’s status, existing or prospective, does not affect the Administrator’s jurisdiction.
Jane has another State A-based client, Sally, who spends the winters in State C, where neither Jane nor her broker-dealer has a place of business or any retail clients. Jane sends Sally a research report with a strong buy recommendation for XYZ stock. Sally calls Jane with an order to purchase 100 shares of XYZ. The jurisdiction over this transaction belongs to
A. the State A Administrator.
B. the State C Administrator.
C. both the State A and State B Administrators.
D. both the State A and State C Administrators.
D. Just as with the previous question, we have an offer from State A resulting in that Administrator having jurisdiction. Although the client lives in State A, they accepted the offer while in State C, so the State C Administrator has jurisdiction.
Wayne and Grayson, Ltd., is a broker-dealer with offices in Gotham, New Jersey. They place an ad for a new securities issue in the Gotham Gazette. Approximately 55% of the Gazette’s readership is in Delaware. Under the Uniform Securities Act, jurisdiction over this ad would lie with
A. The Administrator of New Jersey.
B. the Administrator of Delaware.
C. the Administrators of both New Jersey and Delaware.
D. the Administrator of neither New Jersey nor Delaware.
A. Although more than half the readers of the Gazette live in Delaware, under the terms of the publishing and broadcasting exemption of the USA, the offer is not made in Delaware because the paper is not published there. Therefore, the Administrator of New Jersey has sole jurisdiction over the offering. No dual or multiple jurisdiction applies unless the offer is accepted in Delaware. What would the answer be if the question stated that more than 2/3 of the circulation was outside New Jersey? Once that happens, believe it or not, no state has jurisdiction.
A state’s securities Administrator has jurisdiction over a securities offering if
I. The security was registered in that state.
II. it originated in that state.
III. It was accepted in that state.
IV. the broker-dealer is registered in that state.
A. I and II
B. I and IV
C. II and III
D. III and IV
C | The Administrator of this state has jurisdiction over an offer to buy or sell as follows. An offer to sell or to buy is made in this state, whether or not either party is then present in this state when the offer originates from this state. An offer to buy or to sell is accepted in this state when acceptance is communicated to the offeror in the state. The security may be registered in dozens of states, including this state, or the security might be exempt from registration. That means it would not be registered in this state. However, the Administrator has jurisdiction only when the offer is made or accepted in this state. Likewise, the broker-dealer may be registered in many states. Still, unless the BD is involved in an offer or acceptance in this state, this state’s Administrator does not have jurisdiction.
LO 12.a
An Administrator has jurisdiction over an offer to sell securities if it was made in a newspaper published within the state with no more than
A. one-third of its circulation outside the state.
B. one-half of its circulation outside the state.
C. two-thirds of its circulation outside the state.
D. 90% of its circulation is outside the state.
C | A state Administrator has jurisdiction over a securities offering made in a bona fide newspaper published within the state with no more than two-thirds of its circulation outside the state.
LO 12.a
An agent of a broker-dealer solicits clients to purchase unregistered promissory notes. The agent claims that promissory notes are not securities and, therefore, do not need to be registered. The Administrator disagrees with that position and would issue
A. a cease and desist order against the agent.
B. a cease and desist order against the issuer of the note.
C. a stop order against the agent.
D. a stop order against the issuer.
A. Unless we had reason to believe that the issuer claimed that its notes were not securities, the only person guilty here is the agent. Stopping the agent from continuing to solicit the purchase of unregistered securities is done by issuing a cease and desist order.
Palterer Products, Inc. (PPI), headquartered in State J, has sent an announcement to some broker-dealers in the state promoting their 8% promissory notes as a high-interest nonsecurity alternative to a bank CD. The compliance officer of your firm forwards this to the State J Administrator. What action would the Administrator likely take?
A. Issue a cease and desist order against the compliance officer with or without a hearing
B. Issue a cease and desist order against PPI with or without a hearing
C. Issue a stop order against the compliance officer after allowing a hearing
D. Issue a stop order against PPI after allowing a hearing
D. Promissory notes are securities, and, therefore, PPI must stop soliciting the sale of them as nonsecurities. The method of doing so is through the issue of a stop order. No order would be forthcoming against the compliance officer; she was only doing her job correctly. Remember, cease and desist orders are against registered securities professionals, and stop orders against issuers. Finally, the cease and desist order can be issued with or without a hearing, and the stop order can be issued only after a hearing.
Which of the following accurately describes a cease and desist order as authorized by the Uniform Securities Act?
A. An order that a federal agency issued to a brokerage firm to stop an advertising campaign
B. An Administrator’s order to refrain from a practice of business she believes to be unfair
C. A court-issued order requiring a business to stop an unfair practice
D. An order from one brokerage firm to another to refrain from unfair business practices
B | A cease and desist order is a directive from an administrative agency to stop a particular action immediately. Administrators may issue cease and desist orders with or without a prior hearing. Brokerage houses cannot issue cease and desist orders to each other.
LO 12.b
The Administrator may cancel the registration of an adviser if
A. mail is returned with notification that the forwarding notice has expired.
B. the adviser is not in the business any longer.
C. a court has declared the adviser to be mentally incompetent.
D. any of the above.
D | You must know the difference between cancellation of a registration (which requires no hearing) and revocation (which does).
Cancellation is nonpunitive (the registrant is not guilty of a violation).
LO 12.c
Martha is an agent with Rapid Execution Services (RES), a broker-dealer registered in all 50 states. Martha offers an IPO of a nonexempt security to a client without realizing that the security has not been registered in the client’s state. The client purchases 500 shares of the new issue and, six months later, sells the stock at a price 70% below the original purchase price. Because the stock was not registered in the client’s state, the client could claim
I. payment of the difference between the proceeds and the purchase price.
II. interest at the state’s legal rate, minus any income received from the security.
III. Court costs and lawyer’s fees if the client has to go to court.
IV. punitive damages equal to the amount of the loss.
A. I and II
B. I, II, and III
C. IV only
D. I, II, III, and IV
B. When a security is sold in violation of the USA (nonexempt security must be registered under this scenario), the client can claim to be “made whole” plus interest plus the expenses of going to court and paying for legal representation. In general, to avoid the legal costs (and publicity) when a case like this is uncovered, the broker-dealer will present an offer of rescission, which gives the client all of this except the court and legal fees (because it is unnecessary to go to court). Punitive damages are not part of the client’s recovery rights.
Aaron is a client of XYZ Financial Services. Over the past several years, Aaron has been suspicious of possible churning of his account but has taken no action because his account performance has been outstanding. After reviewing his most recent statement, Aaron suspects that excessive transactions have occurred. He consults his attorney, who informs him that under the Uniform Securities Act, any lawsuit for recovery of damages under the act must commence within
A. one year of occurrence.
B. two years of occurrence.
C. three years of occurrence or two years of discovery, whichever occurs first.
D. two years of occurrence or three years of discovery, whichever occurs last.
C | Under the USA, the lawsuit for recovery of damages must commence within three years after the occurrence of the offense or two years after its discovery, whichever happens earlier.
LO 12.d
If an agent chooses to appeal an Administrator’s order, when must the agent file for review of the order with the appropriate court?
A. Immediately
B. Within 30 days after the entry of the order
C. Within 60 days after the entry of the order
D. Within 180 days after the entry of the order
C | Under the USA, a registered person has up to 60 days to appeal any order issued against him by the state Administrator.
LO 12.e
