Denial, Suspension, Revocation, and Cancellation of Agent Registration
With registration and post-registration obligations in place, the next question is: what can the Administrator do if an agent falls short? The Uniform Securities Act (USA) Section 204 gives the Administrator broad authority, but with important procedural safeguards.
The Two-Prong Test for Administrative Action
The Administrator may deny, suspend, or revoke any agent's registration only if the Administrator finds BOTH:
- The order is in the public interest, AND
- One or more specific statutory grounds in Section 204(a)(2) applies
- Both prongs must be satisfied
- A statutory ground alone is not sufficient without a public interest finding
- A public interest finding alone is not sufficient without a statutory ground
Exam Tip: Gotchas
- Both prongs are required. Public interest AND a statutory ground must both be present. Neither alone is enough to deny, suspend, or revoke.
Grounds for Denial, Suspension, or Revocation
| Ground | Details |
|---|---|
| (A) False or incomplete application | The agent filed an application that was incomplete in any material respect or contained a false or misleading statement as of its effective date |
| (B) Willful violation | Willful violation of the USA, a predecessor act, or any federal securities law (SA 1933, SEA 1934, IAA 1940, ICA 1940, 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 (regardless of whether securities-related) |
| (D) Injunction | Permanently or temporarily enjoined by a court from engaging in conduct involving any aspect of the securities business |
| (E) Prior administrative order | Subject to an order by the Administrator (or another state) denying, suspending, or revoking registration |
| (F) Other state/federal adjudication | Subject to an adjudication within the past 10 years by a securities or commodities agency finding a willful violation |
| (G) Dishonest or unethical practices | 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 of an agent can be used against the agent, but an agent's insolvency cannot be used against the employing broker-dealer (BD) |
| (H.1) Foreign jurisdiction violations | Willful violation of a foreign securities/banking law, or subject to a foreign regulatory action within the past 5 years |
| (I) Lack of qualifications | Not qualified based on training, experience, and knowledge |
| (K) Failure to pay filing fee | Administrator may enter only a denial order (not suspension or revocation), and must vacate the order when the deficiency is corrected |
Important Time Limits in the Grounds
- Criminal conviction: 10 years (felony: any type; misdemeanor: only if securities-related)
- Other state/federal adjudication: 10 years
- Foreign jurisdiction action: 5 years
Exam Tip: Gotchas
- Felonies do NOT need to be securities-related. Any felony conviction within 10 years is grounds. Misdemeanors, however, must involve a security or the securities business.
- Failure to pay the filing fee can only result in denial, not suspension or revocation. And the Administrator must vacate the denial once the fee is paid.
Special Rules for Qualification-Based Denials
The Administrator has limits when denying based on lack of qualifications:
- An agent who works under the supervision of a registered BD need not have the same qualifications as a BD itself
- The Administrator may NOT deny solely on the basis of lack of experience if the applicant is qualified by training or knowledge (or both)
- The Administrator may require an examination (such as the Series 63) as a condition of registration
Summary Suspension
This is the one exception to the general rule requiring prior notice and hearing:
- The Administrator may summarily postpone or suspend an agent's registration pending final determination of any proceeding
- A summary suspension can be entered without a prior hearing
- Upon entry of the order, the Administrator must promptly notify:
- The agent
- The agent's employer (or prospective employer)
- The agent may request a hearing within 15 days after receipt of written notice
- If no hearing is requested and none is ordered, the summary suspension remains in effect until modified or vacated
Exam Tip: Gotchas
- A summary suspension can be entered WITHOUT a prior hearing. This is the one exception to the general procedural rules. But the agent must be promptly notified and given the opportunity to request a hearing within 15 days.
Cancellation
Cancellation is a housekeeping tool, NOT a disciplinary action. The Administrator may cancel an agent's registration if the agent:
- Is no longer in existence
- Has ceased to do business as an agent
- Is subject to an adjudication of mental incompetence or to the control of a committee, conservator, or guardian
- Cannot be located after reasonable search
| Action | Nature | Purpose |
|---|---|---|
| Cancellation | Non-punitive | Clean up inactive registrations |
| Revocation | Punitive | Discipline for misconduct |
| Suspension | Punitive | Temporary discipline |
| Denial | Preventive | Block unfit applicants |
Exam Tip: Gotchas
- Cancellation is NOT punitive. It is a housekeeping tool for cleaning up inactive registrations. Revocation is the punitive action for misconduct.
Withdrawal
An agent may withdraw from registration, but cannot "withdraw under fire":
- Withdrawal becomes effective 30 days after receipt of the withdrawal application, unless:
- A revocation or suspension proceeding is pending when the application is filed, OR
- A proceeding is instituted within 30 days after the application is filed
- Even after withdrawal becomes effective, the Administrator may institute a proceeding within 1 year for willful violations under Section 204(a)(2)(B)
Exam Tip: Gotchas
- Withdrawal does NOT escape pending proceedings. If a revocation or suspension proceeding is pending (or gets started within 30 days), the withdrawal is blocked.
Procedural Requirements
No order may be entered under Section 204 (except a summary suspension) without:
- Appropriate prior notice to the agent AND the agent's employer
- Opportunity for hearing
- Written findings of fact and conclusions of law
The 90-Day Rule
This rule prevents the Administrator from "sandbagging" agents:
- The Administrator may NOT institute a suspension or revocation proceeding solely on the basis of a final judicial or administrative order that was known to the Administrator before the registration became effective
- Unless the proceeding is instituted within 90 days following registration
- After 90 days, the Administrator needs a different ground
- This rule does NOT apply to renewal registrations; only initial registrations
Exam Tip: Gotchas
- The 90-day sandbagging rule only applies to initial registration. If the Administrator knew about a prior order when it approved the agent's registration, it has only 90 days to use that order as a basis for revocation. After 90 days, a different ground is needed. This protection does NOT apply at renewal time.