Denial, Revocation, and Withdrawal

The full grounds for denying, suspending, or revoking a registration are the same statutory list that applies to broker-dealers, agents, and investment advisers, and are covered in depth in the Administrator powers unit. This section focuses on how that authority applies specifically to IARs.

What Can the Administrator Do to an IAR's Registration?

The Administrator may deny, suspend, or revoke an IAR's registration, bar or censure the IAR (or an officer, director, or partner of a registrant) from employment with a registered broker-dealer or investment adviser, or restrict or limit the IAR as to any function or activity requiring registration. Every disciplinary action requires both:

1. A finding that the order is in the public interest, AND
2. At least one of the specified statutory grounds

Cancellation is different: it is non-punitive and needs neither a public-interest finding nor a listed ground.

What Grounds Support Action Against an IAR?

The grounds are the same list used against agents and broker-dealers:

• Filing deficiencies: the application, as of its effective date (or, for an order denying effectiveness, as of any date after filing), was incomplete or contained a statement that was false or misleading in a material respect
• Willful violation: willful violation of, or failure to comply with, the USA, a predecessor act, or any rule or order under either, or of a named federal securities law (Securities Act of 1933, Securities Exchange Act of 1934, Investment Advisers Act of 1940, Investment Company Act of 1940, or Commodity Exchange Act)
• A felony, or a securities-related misdemeanor, conviction within the past 10 years
• A permanent or temporary injunction, from a court of competent jurisdiction, from engaging in or continuing any conduct or practice involving any aspect of the securities business
• A prior order of this state's Administrator denying, suspending, or revoking registration (no separate time limit stated)
• An adjudication by another regulator or a court, after notice and opportunity for hearing, within the past 10 years, finding a willful violation of a named securities or commodities law
• Dishonest or unethical practices in the securities business
• Insolvency: liabilities exceed assets, or the person cannot meet obligations as they mature (either test is sufficient)
• A willful violation of a foreign jurisdiction's securities or banking law (no stated time limit), or being subject to a foreign regulator's or SRO's action within the past 5 years
• Lack of qualifications, judged by training, experience, and knowledge of the securities business
• Failure to supervise: this ground applies when the registrant itself is the broker-dealer or investment adviser that failed to reasonably supervise its agents, IARs, or other employees. It is a firm-level ground, not a free-standing ground against an individual supervisory IAR
• Failure to pay the filing fee (denial only; the Administrator must vacate the order once the deficiency is corrected)

Exam Tip: Gotchas

An IAR's own insolvency IS a valid ground against the IAR. The IAR is a registrant, so this ground applies directly. The statute's limit runs the other way: the Administrator may not act against the IA firm itself on the insolvency clause without a finding of insolvency as to the firm, so an IA cannot be sanctioned merely because one of its partners, officers, or directors is personally insolvent.

Two grounds are easy to conflate. A prior order of this state's Administrator carries no separate lookback period. An adjudication by another regulator or a court does, but only within the past 10 years, and only after notice and a hearing opportunity. Read carefully which actor issued the order before applying a time limit.

What Qualifications Standard Applies to a Supervised IAR?

The USA gives IARs a specific qualifications protection that does not exist for the IA firm itself:

• The Administrator may not enter an order against an IA on lack-of-qualification grounds based on anyone other than (A) the IA itself, if an individual, or (B) an IAR who represents the IA
• The Administrator shall consider that an IAR who works under the supervision of a registered IA need not have the same qualifications as the IA itself
• The Administrator may not enter an order solely on lack of experience if the applicant is qualified by training or knowledge, or both
• The Administrator may by rule provide for an exam and may waive the exam requirement for a person or class of persons if it is not necessary for the protection of advisory clients

Exam Tip: Gotchas

A supervised IAR does not need to match the IA's own qualification level. This is a distinct, narrower rule from the general "lack of qualifications" ground above; it limits how high a bar the Administrator can set for a supervised individual, not whether the ground exists at all.

What Due Process Does the Administrator Owe an IAR?

No final order may be entered without all three: prior notice to the applicant or registrant (and to the employer or prospective employer, since the registrant is an IAR), an opportunity for hearing, and written findings of fact and conclusions of law.

The exception is a summary order. The Administrator may summarily postpone or suspend a registration pending final determination, then must promptly notify the IAR and the employer of the order and its reasons. If the IAR requests a hearing in writing, the matter must be set down for hearing within 15 days of that request.

If no hearing is requested or ordered, the summary order stays in effect until modified or vacated. If a hearing is requested or ordered, the Administrator may modify, vacate, or extend the order until final determination.

What Is the 90-Day Rule?

The Administrator may not institute a suspension or revocation proceeding solely on the basis of a final judicial or administrative order the applicant disclosed to the Administrator before the effective date of registration, unless the proceeding is instituted within 90 days of registration becoming effective. A stayed order, or one still under appeal, is not "final" for this purpose, and the rule does not apply to renewal registrations.

Exam Tip: Gotchas

This is a narrow rule about one disclosed final order, not a general rule about everything the Administrator knew before registration. It only blocks the Administrator from sitting on a final order the applicant itself disclosed and then acting on it long after the fact. It does not limit action based on facts the Administrator learns later, or on undisclosed facts.

How Does Cancellation Differ From Revocation?

How Does Withdrawal of IAR Registration Work?

An IAR may withdraw by filing a withdrawal application. Withdrawal becomes effective 30 days after the Administrator receives the application, or sooner if the Administrator determines a shorter period.

That automatic 30-day clock is blocked if one of three things happens: a revocation or suspension proceeding is already pending, one is instituted within 30 days of the application, or a proceeding to impose conditions on the withdrawal is instituted within that same 30 days. If any of these happens, withdrawal instead becomes effective at the time and on the conditions the Administrator sets.

Even after withdrawal takes effect cleanly, the Administrator may still institute a revocation or suspension proceeding for a willful violation within 1 year after withdrawal, and may enter the order as of the last date registration was effective.

Exam Tip: Gotchas

An IAR cannot escape discipline by withdrawing. The Administrator has 30 days to block a clean withdrawal, and even after withdrawal takes effect, has a full year to bring a willful-violation proceeding retroactively.

What Should You Check on Exam Day?

• Disciplinary action needs both a public-interest finding and a listed ground; cancellation needs neither
• Insolvency is a valid ground against the IAR personally; the firm-level limit protects only the IA itself from a partner's or officer's insolvency
• A supervised IAR is not held to the IA's own qualification standard
• Due process requires prior notice, a hearing opportunity, and written findings, except for an immediate summary order; once the IAR requests a hearing in writing, the Administrator has 15 days to set it down (there is no deadline on the IAR to request one)
• The 90-day rule covers only a final order the applicant disclosed before effectiveness, not any pre-registration fact generally
• Withdrawal takes 30 days to become effective (or sooner, at the Administrator's discretion), but the Administrator can still act on willful violations within 1 year afterward
• Failure to supervise reaches the broker-dealer or investment adviser itself, not an individual agent or IAR directly