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.

The One-Liners That 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.
• Registration actions (deny, suspend, revoke, condition) hit broker-dealers, agents, investment advisers, investment adviser representatives (IARs), and securities.
• A felony (any type, not just securities-related) counts if the conviction is within the past 10 years; a misdemeanor must involve securities or financial dishonesty (no time limit).
• Insolvency is grounds against firms (broker-dealers and investment advisers), NOT against individual agents or IARs.
• A summary (emergency) order is the ONLY way to act without a prior hearing, and it requires both public interest AND imminent threat.
• A cease and desist order can target anyone (not just registrants) and can be issued when a person is about to violate, not only after.
• Criminal charges come from the attorney general or local prosecutor, never the administrator; the administrator only refers cases.
• Only the injured investor can bring a civil action; the remedy is rescission: purchase price plus interest minus income received.

Numbers to Lock In

Top Gotchas

• 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. If the exam asks who brings criminal charges, the answer is the prosecutor or attorney general, never the administrator.
• A misdemeanor must be securities-related or involve financial dishonesty; a felony does not (a felony DUI from 8 years ago counts).
• The 3-year civil deadline is absolute. Discovery can shorten the window (2 years from discovery) but never extend it past 3 years from the sale, and whichever deadline comes first applies.
• Silence forfeits the right to sue on a rescission offer. A buyer who still owns must accept within 30 days; a buyer who sold must reject in writing within 30 days. Doing nothing gives up the claim either way.
• The rescission offer must come BEFORE the buyer files suit; once the lawsuit is filed, it cannot eliminate liability.
• Consent to service of process is irrevocable. It cannot be withdrawn even after leaving the state or letting registration lapse.

Authority of the State Securities Administrator

• 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.
• CANNOT: impose fines, jail or arrest, issue injunctions directly (must go through a court), bring criminal charges, award damages to investors, make rules inconsistent with the USA.

Administrative Actions

• Grounds include a false or misleading application, a qualifying felony or misdemeanor conviction, being subject to another regulator's order, dishonest or unethical practices, firm insolvency, failure to supervise, and willful violation of the act or a rule or order.
• Due process: prior notice and opportunity for a hearing before denial, suspension, or revocation, plus the right to judicial review of any final order.
• Summary order: acts without a prior hearing in an emergency; a hearing follows within 15 days if requested, and if none is requested the order becomes final.
• Cease and desist: can be issued with or without a prior hearing, targets anyone, and stops conduct rather than punishing it.

Other Penalties and Liabilities

• Civil recovery formula: purchase price plus interest minus income received (rescission) if the buyer still owns; damages if the buyer already sold.
• Who is liable: the seller, any person who controls the seller (supervisor or firm), and broker-dealers or agents who materially aided the transaction (controlling-person liability).
• Criminal: willful (intentional) violation only; negligence or ignorance is not enough. The 5-and-3 ceiling is a $5,000 fine and 3 years imprisonment per violation, which can be imposed together.
• Rescission offer: written, gives the same recovery formula, 30-day response; accepting relieves the violator of further liability.
• Consent to service of process: every applicant and issuer files an irrevocable consent appointing the administrator as agent for service, so the state can always reach them.
• Three tracks and burdens: administrative (public interest, lowest), civil (preponderance of evidence), criminal (beyond reasonable doubt, highest).

Memory Aid: 5 and 3 for 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: making rules and orders, investigating inside and outside the state, subpoenaing, and denying, suspending, or revoking the registrations of broker-dealers, agents, advisers, IARs, and securities, but it can never fine, jail, or award damages. A felony (any type) within the past 10 years or a securities-related misdemeanor is grounds for action, firm insolvency counts but individual insolvency does not, and due process means notice and a hearing first, except for an emergency summary order that requires public interest plus imminent threat with a hearing within 15 days if requested. The civil track belongs to the injured investor, who recovers purchase price plus interest minus income received under a statute of limitations of 2 years from discovery or 3 years from sale (whichever comes first, with the 3-year deadline absolute), and a written rescission offer with a 30-day window can head off the suit. The criminal track belongs to the prosecutor, not the administrator, punishing willful violations with a $5,000 fine and 3 years imprisonment, and every registrant files an irrevocable consent to service of process so the state can always reach them.

Need more than the recap? This is a condensed summary. If it is not enough, read the full Remedies and Administrative Provisions unit for the complete lesson.