Criminal Penalties

Now that you understand the civil side (private lawsuits between buyers and sellers), let's move to criminal enforcement under state law, where the state pursues violators through the criminal justice system.

What Are the Penalties for a Willful Violation?

Under the Uniform Securities Act (USA), any person who willfully violates any provision (except the false-filing rule discussed below) or any rule or order may, upon conviction, face:

• Mental state required: Willful (intentional act, not necessarily intent to violate the law)
• Maximum fine: $5,000
• Maximum imprisonment: 3 years
• Combined: Fine, imprisonment, or both

Filing a false or misleading statement with the Administrator requires an additional element: the person must have known the statement was false or misleading in a material respect.

Defense to imprisonment: A person cannot be imprisoned for violating a rule or order if they prove they had no knowledge of that rule or order.

Think of it this way: If you drive 70 in a 55 zone, you "willfully" drove 70, even if you did not see the speed limit sign. You can still get fined. But if the speed limit changed yesterday and the sign was never posted, a court might not send you to jail for it.

Exam Tip: Gotchas

• "Willful" means the person intentionally committed the act, not that they intended to break the law. A broker-dealer who intentionally sells unregistered securities acts "willfully" even if they did not know registration was required.
• The no-knowledge defense does not rescue that broker-dealer. It blocks imprisonment only for violating a rule or order, and the securities registration requirement is a provision of the Act itself. Watch the wording of the answer choice: violate a rule or order and ignorance can keep you out of prison; violate a provision of the Act and it cannot.

Who Prosecutes a Criminal Securities Case?

The Administrator plays a limited but important role in criminal enforcement:

• The Administrator may refer evidence of violations to the attorney general or district attorney
• The attorney general or district attorney may institute criminal proceedings with or without a referral from the Administrator
• The Administrator cannot bring criminal prosecutions directly

Exam Tip: Gotchas

• The Administrator can investigate and refer, but cannot prosecute. Only the attorney general or district attorney can bring criminal charges. This is a common exam distinction; the Administrator's enforcement power is administrative (cease and desist, denial of registration), not criminal.

Does the USA Replace Other Criminal Laws?

• Nothing in the USA limits the power of the state to punish any person for conduct that constitutes a crime under other statutes or at common law
• Securities fraud may be prosecuted under both the USA and general criminal fraud statutes
• This means violators can face criminal charges from multiple sources

Is There a Statute of Limitations on Criminal Actions?

The Model Act includes bracketed, optional language barring an indictment or information more than 5 years after the alleged violation. NASAA's official comment says this language is meant for a state that has no general criminal statute of limitations of its own.

• The 5-year figure is not a universal USA rule. Whether it applies, and what limit governs if it does not, depends on the adopting state's own law
• Do not treat 5 years as guaranteed in every jurisdiction, and do not assume it is longer or shorter than a state's general criminal statute of limitations without more information

For comparison, the civil statute of limitations covered in the next lesson is a fixed, non-optional rule: 3 years from the sale or 2 years from discovery, whichever occurs first.

Exam Tip: Gotchas

• The 5-year criminal filing period is bracketed, optional Model Act language, not a fixed nationwide rule the way the civil 3-year/2-year limits are. If a question asks for the civil statute of limitations, answer 3 years from the sale or 2 years from discovery. If it asks about the optional criminal filing period the Model Act suggests, answer 5 years, but do not treat that 5-year figure as mandatory in every state.

What Should You Check on Exam Day?

• Can you distinguish "willful" (intentionally did the act) from "intended to break the law" (not required)?
• Do you know the maximum penalties are a $5,000 fine, 3 years imprisonment, or both, upon conviction?
• Can you spot when a fact pattern involves a false or misleading filing with the Administrator, which requires the added element of knowledge that the statement was false or misleading?
• Do you know the no-knowledge defense blocks imprisonment for violating a rule or order, but not for violating a provision of the Act itself?
• Can you identify that only the attorney general or district attorney prosecutes, never the Administrator?
• Do you know the 5-year criminal filing period is optional, bracketed Model Act language, not a guaranteed nationwide rule?