Quick Answer
Four enforcement routes follow a violation. Civil: the buyer sues for rescission (price paid plus interest, less income received, plus attorneys' fees). Criminal: willful violations carry up to 3 years prison, a $5,000 fine, and a 5-year statute of limitations. Judicial: only a court grants injunctions, receivers, and disgorgement. Administrative: the Administrator issues cease and desist.
The whole unit on one sheet: who can bring each action, the money math, and the time limits the exam loves.
Civil Liabilities (the Buyer's Private Right of Action)
- A seller is civilly liable to the buyer for selling while unregistered, selling unregistered securities, or making an untrue statement or omission of a material fact.
- Burden of proof is flipped onto the seller: they must prove they did not know, and with reasonable care could not have known, of the untruth or omission.
- Rescission (buyer still owns): purchase price + interest, minus income received, plus court costs and reasonable attorneys' fees. Buyer must tender the security back.
- Damages (buyer already sold): the rescission amount minus what they got on the sale plus interest from the sale date.
- Control persons (partners, officers, directors, materially-aiding employees) are jointly and severally liable, with the same no-knowledge-plus-reasonable-care defense.
- A signed waiver of the buyer's rights is void; an arbitration clause is valid because it changes the forum, not the rights.
Criminal Penalties (Willful Violations)
- Willful means the person intended the act, NOT that they intended to break the law.
- Maximum penalties apply per violation: up to $5,000 fine and up to 3 years imprisonment (fine, prison, or both).
- Defense to imprisonment: a person cannot be jailed for violating a rule or order if they prove they had no knowledge of it (fines can still apply).
- The Administrator can investigate and refer evidence, but cannot prosecute. Only the attorney general or district attorney brings charges.
Judicial Remedies (Court-Ordered)
- Only a court can grant injunctions, restraining orders, a writ of mandamus, receivers/conservators, rescission, restitution, and disgorgement.
- The Administrator requests these; it cannot issue them alone.
- The Administrator need not post a bond when seeking injunctive relief.
The One-Liners That Win Points
- If it involves money or managing assets (rescission, restitution, disgorgement, receiver), it requires a court, never the Administrator alone.
- A cease and desist order is administrative and needs no prior hearing; injunctions are judicial and require a court proceeding.
- Criminal actions get a longer statute of limitations than civil.
- Silence to a rescission offer forfeits the right to sue, whether or not the buyer still owns the security.
- Causes of action survive death; the estate can continue the suit.
Numbers to Lock In
| Item | Value |
|---|---|
| Criminal maximum imprisonment (per violation) | 3 years |
| Criminal maximum fine (per violation) | $5,000 |
| Criminal statute of limitations (SOL) | 5 years from the violation |
| Civil SOL from discovery of the violation | 2 years |
| Civil SOL from the sale (absolute cap) | 3 years |
| Civil SOL controlling limit | whichever expires FIRST |
| Rescission-offer response window | 30 days |
Memory Aid: 5-5-3
- 5-year statute of limitations
- $5,000 maximum fine
- 3 years maximum imprisonment
Top Gotchas
- The criminal 5-5-3: 5-year statute of limitations, $5,000 fine, 3 years imprisonment. All three are per violation, so three counts triple the totals.
- The "no knowledge of the rule" defense blocks prison only, not fines, and only when the person proves they did not know the rule or order.
- Civil rescission math subtracts income received (dividends, interest) and adds attorneys' fees and interest; the buyer must tender the security before judgment.
- A written rescission offer kills the buyer's later suit if the buyer does nothing within 30 days, whether or not they still own the security. Silence equals giving up the right to sue.
- The civil SOL has two prongs and the shorter one wins: 2 years from discovery or 3 years from the sale.
One-Breath Recap
A securities violation opens four doors: administrative (the Administrator issues cease and desist with no prior hearing), judicial (only a court grants injunctions, receivers, rescission, restitution, and disgorgement, and the Administrator posts no bond), criminal (willful violations carry the 5-5-3: a 5-year statute of limitations, a $5,000 fine, and up to 3 years imprisonment per violation, with a no-knowledge-of-the-rule defense that blocks prison but not fines), and civil (the buyer sues for rescission of price paid plus interest and attorneys' fees, less income received, with the burden flipped onto the seller and a 2-years-from-discovery or 3-years-from-sale limit, whichever is shorter). A written rescission offer ignored for 30 days ends the buyer's suit, and money or asset control always means a court.
Need more than the recap? This is a condensed summary. If it is not enough, read the full Criminal, Civil, and Judicial Remedies unit for the complete lesson.