Denial, Suspension, and Revocation of Registration of Persons
With investigative powers and enforcement tools covered, let's turn to how the Administrator controls who is allowed to operate in the securities industry. This is one of the most detailed and frequently tested topics on the Series 63.
Actions Available (USA Section 204)
The Administrator may by order:
- Deny a registration (prevent it from becoming effective)
- Suspend a registration (temporarily halt it)
- Revoke a registration (permanently terminate it)
- Bar a registrant (or any officer, director, or partner of a registrant) from employment with a registered broker-dealer or investment adviser
- Censure a registrant
- Restrict or limit a registrant as to any function or activity
The Two-Prong Test: Both Required
To take any of these actions, the Administrator must find both:
- The order is in the public interest, AND
- One or more of the specific statutory grounds in Section 204(a)(2) exists
Exam Tip: Gotchas
"In the public interest" alone is not sufficient. The Administrator must also establish at least one specific ground. Conversely, a specific ground alone is not enough; the action must also be in the public interest. Both prongs are always required.
Grounds for Action (USA Section 204(a)(2))
There are 11 statutory grounds. You need to know all of them:
| Ground | Key Detail |
|---|---|
| (A) False or incomplete application | Application was incomplete or contained false/misleading statements as of the effective date |
| (B) Willful violation | Willfully violated the USA, Securities Act of 1933, SEA 1934, IAA 1940, Investment Company Act 1940, or Commodity Exchange Act |
| (C) Criminal conviction | Convicted within the past 10 years of any misdemeanor involving a security or any felony |
| (D) Injunction | Currently subject to a permanent or temporary injunction involving the securities business |
| (E) Prior Administrator order | Currently subject to an Administrator's order denying, suspending, or revoking registration |
| (F) Prior adverse determination | Subject of an adjudication within the past 10 years finding willful violation of securities laws |
| (G) Dishonest or unethical practices | Engaged in dishonest or unethical practices in the securities business |
| (H) Insolvency | Liabilities exceed assets, or cannot meet obligations as they mature |
| (H.1) Foreign jurisdiction violation | Willfully violated foreign securities/banking law, or subject to foreign regulatory action within past 5 years |
| (I) Lack of qualification | Not qualified based on training, experience, or knowledge |
| (J) Failure to supervise | broker-dealer (BD) failed to reasonably supervise agents; investment adviser (IA) failed to reasonably supervise investment adviser representatives (IARs) |
| (K) Filing fee | Failed to pay the proper filing fee (denial only, not suspension or revocation) |
Key Details on Specific Grounds
"Willfully" (Clause B): Under the USA, "willfully" means the person acted intentionally (they were aware of what they were doing). It does not require:
- Evil motive
- Intent to violate the law
- Knowledge that the law was being violated
Exam Tip: Gotchas
"Willfully" on the Series 63 does not mean the person intended to break the law. It only means they intended to do the act. A person who unknowingly violates a rule still acted "willfully" if they intended to take the action that turned out to be a violation. This definition is tested repeatedly.
Criminal conviction (Clause C):
- Only convictions within the past 10 years count
- Any felony qualifies (not just securities-related)
- Misdemeanors must involve securities or the securities business
Injunction (Clause D): Only a current injunction is grounds; an expired or vacated injunction is not.
Insolvency (Clause H): The Administrator may not enter an order against a broker-dealer or investment adviser under this clause without a finding of insolvency as to the firm itself. An agent's insolvency can be used against the agent, but not against the employing BD/IA.
Filing fee (Clause K): This ground supports only a denial order, and the Administrator must vacate the order when the deficiency is corrected.
Limitations on the Administrator
- The Administrator may not start a suspension or revocation proceeding solely on facts known before registration became effective, unless the proceeding is instituted within 90 days of registration
- This 90-day limitation does not apply to renewal registrations
- The Administrator may not enter an order against a BD on the basis of lack of qualification of anyone other than the BD itself (if an individual) or an agent of the BD
- The Administrator may not enter an order solely on the basis of lack of experience if the applicant is qualified by training or knowledge
Summary Suspension (USA Section 204(c))
The Administrator may by order summarily postpone or suspend a registration pending final determination of any proceeding. This is a temporary, immediate action.
Upon entry of the summary order, the Administrator must promptly notify the person (and the employer if the person is an agent or IAR) that:
- The order has been entered
- The reasons for the order
- Within 15 days after receipt of a written request, the matter will be set down for a hearing
| If the registrant... | Then... |
|---|---|
| Requests a hearing within 15 days | The matter is set for hearing |
| Does not request a hearing | The summary order remains in effect until modified or vacated |
| The Administrator orders a hearing | The order may be modified, vacated, or extended until final determination |
Exam Tip: Gotchas
Summary suspension can happen without a prior hearing; it is immediate. The registrant does have the right to request a hearing within 15 days. This balances investor protection (immediate action) with due process (opportunity to be heard).
Due Process Requirements (USA Section 204(f))
No order may be entered under Section 204 (except for summary suspensions) without all three:
- Appropriate prior notice to the applicant or registrant (and the employer if the person is an agent or IAR)
- Opportunity for hearing
- Written findings of fact and conclusions of law
| Type of Action | Prior Hearing Required? | Notice Required? | Written Findings? |
|---|---|---|---|
| Summary suspension (204(c)) | No (immediate) | Yes (after entry) | No (pending final determination) |
| All other orders under 204 | Yes (prior notice and opportunity for hearing required) | Yes (before entry) | Yes |
Cancellation of Registration (USA Section 204(d))
The Administrator may cancel a registration if the registrant:
- Is no longer in existence or has ceased to do business
- Is subject to an adjudication of mental incompetence or to the control of a committee, conservator, or guardian
- Cannot be located after reasonable search
Cancellation is a ministerial/housekeeping action; it removes inactive registrations from the files. It is not a punitive measure.
Withdrawal from Registration (USA Section 204(e))
- Withdrawal becomes effective 30 days after receipt of the application (or a shorter period determined by the Administrator)
- Exception: withdrawal does not become effective if a revocation or suspension proceeding is pending when the application is filed, or if a proceeding is instituted within 30 days after filing
- Even after withdrawal becomes effective, the Administrator may institute proceedings for willful violations within 1 year after withdrawal
Exam Tip: Gotchas
A person cannot escape regulatory action by withdrawing. The Administrator has 30 days to start proceedings before the withdrawal takes effect, and even after it takes effect, the Administrator has 1 year to pursue action for willful violations.