With registration requirements understood, the next question is: what can go wrong? The state Administrator has broad authority to take action against a broker-dealer's (BD's) registration. That authority comes with procedural safeguards.
Administrator's Authority
- The state Administrator may deny, suspend, revoke, cancel, or condition a BD's registration
- All actions must be in the public interest
- The Administrator must provide prior notice and an opportunity for hearing before issuing a final order (except in emergency situations)
Key point: The "public interest" standard is required for every action the Administrator takes. Even if grounds exist, the action must serve the public interest.
Grounds for Denial, Revocation, or Suspension
The Administrator may act against a registration on any of the following grounds:
| Ground | Details |
|---|---|
| Filing deficiencies | Incomplete, misleading, or materially inaccurate registration application |
| Felony conviction | Any felony conviction within the past 10 years |
| Securities-related misdemeanor | Conviction of a misdemeanor involving a security or any aspect of the securities business within the past 10 years |
| Injunction | Permanently or temporarily enjoined by a court from engaging in securities business |
| Prior regulatory action | Subject to a prior denial, suspension, or revocation by another regulator (state, federal, or self-regulatory organization) |
| Violation of the Act | Willful violation of the Uniform Securities Act (USA) or its rules and orders |
| Dishonest or unethical conduct | Engaging in dishonest or unethical practices in the securities business |
| Insolvency | The BD is insolvent (liabilities exceed assets, or unable to meet obligations as they come due) |
| Lack of qualifications | Insufficient training, experience, or knowledge of the securities business |
| Failure to supervise | Failure to reasonably supervise agents or employees to ensure compliance |
Exam Tip: Gotchas
- Non-securities misdemeanors are NOT grounds for action. Only felonies and securities-related misdemeanors within the past 10 years qualify. A traffic offense or other non-securities misdemeanor alone is not enough.
- The 10-year lookback applies to both felonies and securities-related misdemeanors. Convictions older than 10 years are not grounds for denial or revocation.
The 90-Day Rule
After registration becomes effective, the Administrator's ability to bring a proceeding based on pre-registration conduct is limited:
The Administrator may not institute a proceeding based solely on facts the Administrator knew before registration became effective, unless the proceeding is initiated within 90 days of the effective date.
Two conditions must both be present for the bar to apply:
| Condition | Requirement |
|---|---|
| Prior knowledge | The Administrator had actual knowledge of the facts before registration became effective |
| Elapsed time | More than 90 days have passed since the effective date |
If either condition is absent, the time-bar does not apply:
- Discovery after registration: If the Administrator did not know about the pre-registration conduct until after registration became effective, the 90-day rule does not bar action. The Administrator may institute a proceeding at any time based on newly discovered pre-registration facts.
- Mixed basis: If the proceeding is also based on post-registration conduct or newly discovered facts (not solely pre-existing known facts), the bar does not apply.
- Renewal registrations: The 90-day limitation does not apply to proceedings initiated against a renewal registration.
Why the rule exists: It prevents the Administrator from knowingly allowing a registration to take effect, letting the registrant rely on it and build their business, and then revoking it months or years later using facts the Administrator already knew. When the Administrator has knowledge before effectiveness, prompt action is required.
Exam Tip: Gotchas
- "Discovers" is the key word. If the Administrator discovers pre-registration misconduct after registration becomes effective, there is no time-bar. The 90-day limit only applies to facts the Administrator actually knew before effectiveness, not to facts learned afterward.
- The clock starts at the effective date, not at discovery. If the Administrator had prior knowledge, the 90-day window opens when registration becomes effective, not when the Administrator chooses to act on that knowledge.
- "Solely" matters. The bar applies only when the proceeding rests entirely on those pre-existing known facts. Any post-registration conduct or newly discovered pre-registration facts remove the time restriction.
Cancellation vs. Revocation
This distinction appears frequently on the exam:
| Action | Nature | When Used |
|---|---|---|
| Cancellation | Non-punitive | The registrant no longer exists, has ceased doing business, or cannot be located |
| Revocation | Punitive (disciplinary) | Based on misconduct or other grounds listed above |
- Cancellation is administrative cleanup; the firm is simply gone or unreachable
- Revocation is a consequence of wrongdoing
Exam Tip: Gotchas
- Gone or unreachable = cancellation, not revocation. If a BD has gone out of business and cannot be found, the Administrator cancels (not revokes) the registration. Cancellation is non-punitive; revocation is reserved for misconduct.
Withdrawal of Registration
A BD may voluntarily leave the securities business through withdrawal:
- File an application to withdraw from registration
- Withdrawal becomes effective 30 days after filing, unless the Administrator institutes a proceeding against the registrant
- If a proceeding is pending, withdrawal does not take effect until the proceeding is resolved
Key point: A broker-dealer (BD) cannot escape a pending enforcement action by withdrawing. The Administrator can hold the withdrawal until the matter is resolved.
Exam Tip: Gotchas
- Withdrawal is not effective immediately. It takes 30 days, and the Administrator can block it entirely if a proceeding is pending.
Procedural Protections
The Uniform Securities Act builds in safeguards to prevent arbitrary government action:
- Prior notice required before any final action
- Opportunity for hearing must be provided
- Actions must be in the public interest
- Emergency exception: In urgent situations, the Administrator may act first and provide a hearing afterward
Exam Tip: Gotchas
- Insolvency alone is grounds for action. The BD does not need to have committed fraud; being unable to meet obligations is enough.
- All actions require both public interest AND prior notice/hearing. The only exception is an emergency, where the Administrator can act first and offer a hearing afterward.