Denial, Revocation, Suspension, and Withdrawal
The state Administrator has broad authority over investment adviser representative (IAR) registrations. This section covers the grounds for action, procedural protections, and the rules governing withdrawal from registration.
Administrator's Authority
The Administrator may take any of the following actions against an IAR:
- Deny a registration application
- Suspend an existing registration
- Revoke an existing registration
- Cancel a registration (non-punitive)
- Condition a registration (impose restrictions)
- Bar or censure the IAR
- Restrict or limit the IAR as to any function or activity requiring registration
All actions must satisfy a two-part test: (1) the action must be in the public interest AND (2) it must be based on one or more specified statutory grounds.
Grounds for Action
The Uniform Securities Act (USA) lists specific grounds under Section 204(a)(2):
| Ground | Details |
|---|---|
| (A) Filing deficiencies | Application was incomplete, false, or misleading in a material respect |
| (B) Willful violation | Willful violation of the USA, predecessor act, or any rule/order; or violation of the Securities Act of 1933, Securities Exchange Act of 1934, Investment Advisers Act of 1940, Investment Company Act of 1940, or Commodity Exchange Act |
| (C) Criminal conviction | Conviction within the past 10 years of any misdemeanor involving a security or any aspect of the securities business, or any felony |
| (D) Injunction | Permanently or temporarily enjoined from engaging in the securities business |
| (E) Prior regulatory action | Subject to an order of the Administrator denying, suspending, or revoking registration |
| (F) Other state/federal action | Subject to an adjudication within the past 10 years by another securities/commodities regulator or court finding willful violation |
| (G) Dishonest or unethical conduct | Engaged in dishonest or unethical practices in the securities business |
| (H) Insolvency | Insolvent (liabilities exceed assets, or cannot meet obligations as they mature). Note: insolvency is primarily grounds for action against an investment adviser (IA) firm, not typically against an individual IAR |
| (H.1) Foreign jurisdiction violation | Willful violation of a foreign securities/banking law, or subject to a foreign regulator's action within the past 5 years |
| (I) Lack of qualifications | Not qualified based on training, experience, and knowledge |
| (J) Failure to supervise | Failed to reasonably supervise adviser representatives or employees |
| (K) Failure to pay filing fee | Denial only; Administrator must vacate the order when the deficiency is corrected |
Qualifications Standard for IARs
The Administrator's authority to act on the basis of "lack of qualifications" is limited:
- 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 the basis of lack of experience if the applicant is qualified by training or knowledge or both
- The Administrator may waive the examination requirement for a person or class of persons
Due Process Requirements
The Administrator must follow specific procedures before taking action:
- Prior notice and an opportunity for hearing must be provided before issuing a final order
- Notice must also be provided to the IAR's employer or prospective employer
- Exception: In an emergency, the Administrator may issue a summary order (postpone or suspend registration pending final determination)
- Upon issuing a summary order, the Administrator must promptly notify the IAR and the employer
- Within 15 days of receiving a written request for a hearing, the matter must be set down for hearing
- Written findings of fact and conclusions of law are required for all final orders
Exam Tip: Gotchas
- The Administrator can act first in an emergency by issuing a summary order, but due process must follow. The IAR can request a hearing, and the Administrator must schedule it within 15 days of the written request.
- A final order without proper notice and hearing is invalid. The summary order is temporary; it only buys time until a full hearing can occur.
The 90-Day Rule
The Administrator may NOT institute a suspension or revocation proceeding solely on the basis of facts known before the effective date of registration unless the proceeding is instituted within 90 days of registration becoming effective.
This rule prevents the Administrator from sitting on known disqualifying information and then acting on it long after registration was granted. If the Administrator knew about a problem before registration and did nothing for more than 90 days, the Administrator cannot use that information alone as a basis for action.
Cancellation vs. Revocation
These two actions are fundamentally different:
| Action | Nature | When Used |
|---|---|---|
| Cancellation | Non-punitive | IAR no longer exists, has ceased activity, is subject to an adjudication of mental incompetence, is under the control of a conservator or guardian, or cannot be located after reasonable search |
| Revocation | Punitive (disciplinary) | Based on misconduct or statutory violations |
Cancellation is administrative housekeeping. Revocation is a disciplinary sanction.
Withdrawal of IAR Registration
An IAR may withdraw from registration by filing a withdrawal application:
- Withdrawal becomes effective 30 days after receipt of the application, unless:
- A revocation or suspension proceeding is already pending, OR
- A proceeding is instituted within 30 days of the withdrawal application
- If a proceeding is pending or instituted, withdrawal becomes effective at such time and upon such conditions as the Administrator determines
- Even after withdrawal becomes effective, the Administrator may institute a revocation or suspension proceeding within 1 year after withdrawal and may enter an order as of the last date registration was effective
Exam Tip: Gotchas
- Withdrawing does not escape discipline. If an IAR files for withdrawal while under investigation, the Administrator can block the withdrawal.
- The Administrator has 1 year after withdrawal to bring a revocation proceeding retroactively. Withdrawal does not shield a person from accountability for past misconduct.