Authority of the State Securities Administrator

The state securities administrator is the chief securities regulator in each state. The administrator enforces all provisions of the Uniform Securities Act (USA) within the state. Key sections governing the Administrator's authority are USA Section 204 (denial, suspension, revocation of person registrations), Section 306 (stop orders on securities registrations), Section 407 (jurisdiction over offers and sales), and Section 412 (procedure for administrative actions and judicial review).

• The Administrator does not have the power to:
  • Grant injunctions (only courts can do this)
  • Issue jail sentences (only courts via criminal prosecution)
  • Make judicial determinations of fraud
• The Administrator cannot use non-public information filed with the office for personal benefit

Jurisdiction Over Offers and Sales (USA Section 407)

The Administrator has jurisdiction over an offer or sale of a security if the offer:

• Originated in the state, OR
• Was directed to a person in the state, OR
• Was accepted in the state

Any one of those three contacts is enough. A single transaction can fall within the jurisdiction of multiple states at the same time when the agent calls from one state, the prospect is in a second state, and the acceptance happens in a third.

Exam Tip: Gotchas

• Origin, directed to, and accepted in are three independent jurisdictional bases. The exam often presents a multi-state scenario (call from State A, prospect in State B, acceptance in State C) where all three states have jurisdiction.
• Residency alone is not the test. A state has jurisdiction because an offer was directed to a person physically located there, not merely because that person lives in the state.

Investigative Powers

The administrator may conduct public or private investigations within or outside the state whenever it appears necessary to determine whether any person has violated, is violating, or is about to violate the USA. The Administrator has broad discretion to investigate: no public complaint, court approval, or prior notice to the investigated person is required to open an investigation.

• May require persons to file written statements under oath
• May publish information about violations
• May administer oaths and affirmations
• May subpoena witnesses, compel attendance, take evidence, and require production of documents
• May examine the books and records of any registered person at any time
• Contumacy (the noun) describes the act of being contumacious (the adjective) toward a subpoena: a person is contumacious when they are willfully disobedient and refuse to obey a subpoena. The Administrator petitions the court; non-compliance = contempt of court
• May issue and enforce subpoenas at the request of another state's securities administrator
• Interstate cooperation: coordinates and shares information across jurisdictions with other state administrators, the SEC, FINRA, the CFTC, and banking regulators

Compelled Testimony and Self-Incrimination

• No person may refuse to testify on grounds of self-incrimination
• If a person claims the privilege and is compelled to testify, the testimony cannot be used against them in a subsequent prosecution
• Exception: the witness can still be prosecuted for perjury or contempt committed while testifying

Exam Tip: Gotchas

• The immunity granted is transactional immunity (protection from prosecution for the underlying transaction), not merely use immunity (protection from using the testimony).
• A witness who lies under oath gets NO immunity from perjury charges.

Rulemaking Authority

• May make, amend, and rescind rules, forms, and orders necessary to carry out the act
• May classify securities, persons, and matters and prescribe different requirements for different classes
• May adopt exemptions from registration requirements where consistent with public interest
• All rules and forms must be published
• Good faith reliance: no liability for acts done in good faith in conformity with a rule, form, or order, even if later found invalid
• Every administrative hearing is public unless all respondents request a private hearing and the Administrator agrees

Cease and Desist Orders

The administrator may issue a cease and desist order when any person has engaged or is about to engage in a violation.

• May be issued with or without a prior hearing
• The Administrator may also seek court action for injunctive relief, including:
  • Permanent injunction (final order requiring a person to stop conduct or perform a duty)
  • Temporary injunction (interim order pending final determination)
  • Restraining order (short-term order to preserve the status quo)
  • Writ of mandamus (court order requiring a government official to perform a duty)
  • Appointment of a receiver or conservator for defendant's assets
  • Court-ordered rescission, restitution, or disgorgement
• The Administrator is not required to post a bond when seeking court action

Categorizing Court-Ordered Relief

Exam Tip: Gotchas

• Only the cease and desist order can be issued by the Administrator alone without a hearing. An injunction must be obtained from a court.
• The exam frequently tests whether the Administrator or the court grants injunctions. The answer is always the court.
• Injunctive relief addresses behavior; monetary or equitable relief addresses money or assets. A temporary injunction stops conduct; restitution, disgorgement, and receiver appointments all involve managing or returning money or assets.

Stop Orders on Securities Registrations (Section 306)

The administrator may issue a stop order under USA Section 306 to deny, suspend, or revoke the effectiveness of a securities registration statement.

• Section 306 applies the same two-prong (or two-part) test as Section 204 actions against persons:
  • Prong 1: the order is in the public interest, AND
  • Prong 2: at least one listed statutory ground is supported

Grounds include:

• Incomplete or misleading registration statement
• Willful violation of the USA in connection with the offering
• Subject to a stop order or injunction under another federal or state act
• Issuer's business includes illegal activities
• Offering has worked or would work a fraud upon purchasers
• Unreasonable underwriter/seller compensation or promoter profits

Summary stop orders:

• Administrator may summarily postpone or suspend effectiveness pending final determination
• Same 15-day hearing requirement upon written request
• Administrator may vacate or modify a stop order if conditions have changed

Retroactive limitation (30 days):

The Administrator may not institute a stop order proceeding against an effective securities registration based on facts known to the Administrator at the time of effectiveness unless the proceeding is started within 30 days after the effective date.

Exam Tip: Gotchas

• 30 days is the retroactive window for securities registrations under Section 306. Do not confuse it with the 15-day window for requesting a hearing after a summary postponement, the 60-day window for filing a petition for judicial review under Section 411, or the 10-year lookback for criminal convictions under Section 204.
• Both Section 204 (persons) and Section 306 (securities) use the two-prong test. Public interest alone is never sufficient; a listed statutory ground is also required. Cease and desist orders under Section 408 do not require this two-prong finding.

Section 204: Denial, Suspension, or Revocation of Person Registrations

Under USA Section 204, the Administrator may deny, suspend, or revoke the registration of an applicant or registrant. Revocation is the Administrator's strongest unilateral enforcement tool against a registered person: it permanently terminates the person's ability to operate in the securities industry in that state, and unlike injunctions or restitution, it requires no court involvement.

Section 204 applies the same two-prong test:

• Prong 1: the order is in the public interest, AND
• Prong 2: at least one listed statutory ground exists

Listed statutory grounds include a criminal conviction within the prior 10 years involving securities or any felony, a finding of willful violation, court injunctions, suspension or expulsion from a self-regulatory organization, or a failure to supervise.

"Willfully" Under the USA

Many USA enforcement provisions, including criminal penalties under Section 409, apply only to willful conduct. Under the USA, willfully means the person was aware of what they were doing and intentionally performed the act, regardless of whether they knew the act was illegal.

• The willfulness standard does not require knowledge that the conduct violated the law
• It does not require evil motive or intent to defraud
• It is a higher standard than negligence (intentional, not careless), but a lower standard than requiring knowledge of illegality

Key Comparisons: Administrator vs. Court Actions

Exam Tip: Gotchas

• The Administrator is a quasi-judicial authority. The Administrator can issue cease and desist orders and deny/suspend/revoke registrations, but cannot impose fines, grant injunctions, order restitution, appoint receivers, or sentence anyone to prison. Those powers belong to the courts. This distinction is heavily tested.

Authority Over Federal-Covered Investment Advisers

The National Securities Markets Improvement Act (NSMIA) preempts state registration of federal-covered investment advisers (those registered with the SEC). However, the Administrator retains specific authority:

• May require notice filings with the state
• May require payment of state fees
• Retains full antifraud enforcement authority (Sections 101 and 102)

The Administrator may not:

• Require a federal-covered adviser to register at the state level
• Suspend or revoke the adviser's federal SEC registration (only the SEC may do that)
• Set the adviser's fee schedule