Remedies and Administrative Provisions

The whole unit on one sheet: what the administrator can and cannot do, how administrative actions work, and the civil, criminal, and procedural provisions the exam loves.

Which One-Liners Win Points?

• The state securities administrator administers and enforces the state act; every state has one, and the title varies (Commissioner, Director, Secretary of State) but the powers are the same under the USA.
• The administrator's powers: make rules and orders, investigate and issue subpoenas, seek injunctions through a court, publish violations, and issue cease and desist orders.
• Rules apply broadly (like a regulation); orders apply to a specific person or situation. The administrator can issue both, and rules have the force of law but may never be inconsistent with the USA.
• The administrator may investigate both inside AND outside the state, and may share information with other state, federal (like the Securities and Exchange Commission), criminal, and foreign regulators under a separate cooperation provision.
• A witness compelled to testify after claiming the privilege against self-incrimination gets transactional immunity from state prosecution (not just "use" immunity), but can still be prosecuted for perjury or contempt, and this doesn't grant federal immunity.

Which Numbers Matter Most?

Which Gotchas Trip Students Up?

• The administrator CANNOT impose fines, jail time, or award damages. These are the three most common wrong answers. Fines and imprisonment come from a criminal court; damages come from a civil court.
• The administrator does NOT prosecute. Criminal charges come from the prosecutor or attorney general, never the administrator.
• A misdemeanor must involve a security or the securities business (within the past 10 years); a felony need not be securities-related (a felony DUI from 8 years ago counts).

What Can the State Securities Administrator Do?

• Three buckets: denial, suspension, or revocation grounds for registrants; investigation and subpoena powers; and rulemaking authority.
• CAN: deny/suspend/revoke registrations, issue cease and desist orders, subpoena and compel testimony, refer for criminal prosecution, seek injunctions through a court, make rules and orders.

How Does an Administrative Action Proceed?

• EVERY action needs the public interest PLUS a specific ground. Neither half alone is enough.
• Plain grounds: a false or misleading application, a qualifying felony or misdemeanor conviction, a court injunction against the person, another state's or a court's finding of a willful securities-law violation, the administrator's own prior denial/suspension/revocation order, dishonest or unethical practices, and unpaid filing fees.
• Grounds with a catch: insolvency reaches an individual agent/IAR directly, but a firm must be found insolvent itself; lack of qualification carries the trained-or-knowledgeable and supervised-agent/IAR carve-outs; only a specific foreign regulatory action counts, not any foreign action.
• Failure to reasonably supervise agents/IARs or employees, and willful violation of the act, a predecessor act, the major federal securities/commodities acts, or a rule or order (a direct ground on its own).
• Cancellation (non-punitive: registrant gone, ceased business, incompetent, or unreachable) and withdrawal are distinct from denial/suspension/revocation and don't need the public-interest-plus-grounds test.
• Due process: prior notice, opportunity for a hearing, and written findings of fact and conclusions of law before denial, suspension, or revocation, plus the right to judicial review of any final order.

What Civil and Criminal Penalties Apply?

• Civil recovery formula: consideration paid plus interest, costs, and attorney's fees, minus income received (rescission) if the buyer still owns; damages if the buyer already sold. A client harmed by a paid adviser's registration, advisory-activities, or antifraud violation has the same kind of claim against the adviser, plus recovery of any loss caused by the advice.
• Who is liable: the seller or adviser, any person who controls them, partners/officers/directors or similarly-situated persons, materially-aiding employees, and broker-dealers or agents who materially aided the conduct giving rise to liability (not just a securities transaction), all jointly and severally, unless they prove they neither knew nor could reasonably have known the facts.
• Criminal: willful (intentional) conduct, but knowledge that it was illegal isn't required; a narrow defense blocks imprisonment (not the fine) for violating a rule or order you can prove you didn't know about. The fine and the imprisonment can be imposed together.

What Is the Memory Aid for the Criminal Penalties?

• 5 and 3: a $5,000 fine and 3 years imprisonment per willful violation.

One-Breath Recap

The state securities administrator runs the administrative track: rules and orders, investigations inside and outside the state, subpoenas, and denial, suspension, or revocation of registrations, but never fines, jail, damages, restitution, or disgorgement. Any felony within 10 years or a securities-related misdemeanor is grounds, and every action needs the public-interest finding too. Due process means notice, hearing, and written findings first, except a summary order while a proceeding is pending, set for hearing within 15 days of a written request; a final order is appealable within 60 days, and the appeal does not pause it. The civil track belongs to the injured investor, who recovers consideration plus interest, costs, and fees minus income received, within 2 years of discovery or 3 of sale. The criminal track belongs to the prosecutor: $5,000 and 3 years for willful violations.

Need more than the recap? Read the full Remedies and Administrative Provisions unit.