Administrative Actions

Now that you understand the administrator's powers, let's look at the specific actions the administrator can take against registrants, and the due process protections that apply.

Denial, Suspension, and Revocation of Registration

Against a registrant, the administrator may deny, suspend, or revoke the registration, bar or censure the registrant (or certain of its officers, directors, partners, or equivalent persons) from employment, or restrict or limit its functions or activities:

• Broker-dealers
• Agents
• Investment advisers
• Investment adviser representatives (IARs)

A security's registration statement is different: it can only be denied effectiveness, suspended, or revoked (bar/censure and restrict/limit don't apply to a security).

Grounds for Administrative Action

Every action here requires BOTH of the following: (1) the order must be in the public interest, AND (2) at least one specific ground below must apply. Neither the public-interest finding nor a listed ground is sufficient on its own.

• Filing an incomplete, misleading, or materially false application
• Conviction of any felony (securities-related or otherwise) within the past 10 years
• Conviction of a misdemeanor involving a security or the securities business within the past 10 years
• An adjudication or finding by another state's securities regulator or a court, after notice and hearing within the past 10 years, that the person willfully violated securities laws
• Subject to the administrator's own prior order denying, suspending, or revoking registration as a broker-dealer, agent, investment adviser, or IAR
• Engaging in dishonest or unethical practices
• Being insolvent: this ground reaches the insolvent registrant directly, including an individual agent or IAR. The one limit is that a broker-dealer or investment adviser cannot be sanctioned under this ground based on a partner's, officer's, or director's insolvency; the firm itself must be found insolvent
• Failure to reasonably supervise agents or employees (for a broker-dealer), or IARs or employees (for an investment adviser)
• Willful violation of the act, a predecessor state act, or any rule or order under the act; or willful violation of the Securities Act of 1933, Securities Exchange Act of 1934, Investment Advisers Act of 1940, Investment Company Act of 1940, or Commodity Exchange Act (a direct ground on its own, distinct from the "another state's adjudication" ground above)
• Being enjoined by a court from any conduct or practice involving the securities business (a court injunction)
• Lack of qualification by training, experience, or knowledge. Three limits: lack of experience alone can't support the order if the person is otherwise qualified through training or knowledge; a supervised agent (under a registered BD) or supervised IAR (under a registered IA) need not independently meet the firm's own qualification standard; and experience as a broker-dealer or agent doesn't by itself qualify someone as an investment adviser (the administrator may condition a BD's registration on not conducting advisory business if it isn't advisory-qualified)
• Willful violation of a foreign securities or banking law, or subject to a foreign regulator's action within the past 5 years specifically denying, revoking, or suspending the right to conduct securities business as a broker-dealer, agent, or investment adviser, or a foreign exchange's/SRO's suspension or expulsion from membership (a foreign regulator's action for any other reason, or against an IAR specifically, isn't this ground)
• Failure to pay the required filing fee (denial only; the administrator must vacate the order once the fee is paid)
• The 90-day rule: the administrator can't start a suspension/revocation proceeding solely on a final judicial or administrative order the applicant already disclosed before the registration's effective date, unless the proceeding begins within 90 days of that effective date (this rule doesn't apply to renewal registrations)

The administrator's suspension or revocation of a security's registration follows the same two-part structure: public interest, plus a specific ground (for example, the registration statement is incomplete or materially misleading).

It has its own 30-day rule: the administrator can't start a stop-order proceeding against an already-effective registration statement based solely on a fact or transaction already known when it became effective, unless the proceeding begins within the next 30 days.

Cancellation is different from all of the above: it is non-punitive and doesn't require the public-interest-plus-grounds test. The administrator may cancel if the registrant no longer exists, has stopped doing business, is adjudicated mentally incompetent, or cannot be located after a reasonable search. Withdrawal (a registrant's own request to leave) is likewise a distinct process from denial, suspension, and revocation.

Exam Tip: Gotchas

• Insolvency reaches individual agents and IARs directly, not just firms. The one carve-out: a BD or IA firm can't be sanctioned merely because a partner, officer, or director is personally insolvent; the firm itself must be insolvent for that ground to apply against the firm.
• "Public interest" alone is never enough, and neither is a ground alone. Every disciplinary action needs both.

Felony vs. Misdemeanor Distinction

Exam Tip: Gotchas

A felony conviction within the past 10 years is grounds for action even if it has nothing to do with securities. A DUI felony from 8 years ago? That counts. A misdemeanor must involve a security or the securities business, and it too must fall within the past 10 years.

Due Process Requirements

The USA requires fairness before the administrator can take action:

• Prior notice and opportunity for hearing must be given before denial, suspension, or revocation
• The registrant has the right to know the grounds for the action
• The registrant has the right to present evidence and arguments
• The administrator must issue written findings of fact and conclusions of law to support the order
• The registrant has the right to judicial review of any final administrative order (appeal to the courts)

Judicial Review of a Final Order

A registrant who disagrees with a final administrative order is not limited to the administrator's own process:

• A person aggrieved by a final order may petition the reviewing court to modify or set the order aside
• The petition must be filed within 60 days after the order is entered
• Filing the petition does not automatically stay (pause) the administrator's order; the order stays in effect unless the court specifically grants a stay
• The court's review is normally based on the certified administrative record, and the administrator's factual findings are conclusive if supported by competent, material, and substantial evidence. A court can still order additional material evidence to be taken before the administrator when there's a reasonable explanation for why it wasn't presented earlier

Exam Tip: Gotchas

• A 60-day deadline applies to judicial review, not the summary-order hearing request. Do not confuse this filing window with the 15-day window the administrator uses to set a matter down for hearing after a summary order.
• Appealing does not pause the order. Unless the court grants a stay, the administrator's order remains in effect while the appeal is pending.

Summary Orders

There is one critical exception to the "hearing first" rule:

• The administrator may issue a summary order to postpone or suspend a registration without a prior hearing while a proceeding is pending (pending final determination of a proceeding under the act). Unlike the eventual disciplinary order, the statute doesn't condition this interim summary order on a separate public-interest finding
• On entering the order, the administrator promptly notifies the registrant of the reasons and that the matter will be set down for hearing within 15 days after the administrator receives a written request for one
• There is no deadline for the registrant to request a hearing. If none is requested (and none is ordered), the order simply remains in effect until the administrator modifies or vacates it

Exam Tip: Gotchas

A summary order lets the administrator act without a prior hearing while a proceeding is pending; it does not turn on an "imminent threat." The 15-day clock is the administrator's window to set the matter down for hearing after receiving a written request, not a deadline for the registrant to request one. If no hearing is requested, the order stays in effect until the administrator modifies or vacates it (it does not automatically become "final").

Cease and Desist Orders

• The administrator may issue cease and desist orders when a person is engaged in or about to engage in acts constituting a violation
• Can be issued with or without a prior hearing (summary cease and desist)
• Unlike registration actions, cease and desist orders can target anyone (not just applicants or registrants)
• The purpose is to stop the conduct immediately, not to punish

Exam Tip: Gotchas

• Cease and desist orders can target anyone, not just applicants or registrants. Registration actions (denial, suspension, revocation) apply to applicants and registrants, and to security registration statements.
• A cease and desist order can be issued when someone is about to violate the act, not only after a violation has occurred.

What Should You Check on Exam Day?

• Do you know disciplinary registration actions require BOTH a public-interest finding AND a specific statutory ground, and can you list those grounds?
• Do you know the felony versus misdemeanor distinction: any felony within 10 years counts, but a misdemeanor must involve a security or the securities business?
• Do you know insolvency reaches an individual agent or IAR directly, and that the only carve-out is a firm can't be sanctioned for a partner's/officer's/director's personal insolvency?
• Can you distinguish cancellation (non-punitive, no public-interest test) and withdrawal from denial/suspension/revocation?
• Can you explain when a summary order can be issued without a prior hearing, and what triggers the 15-day hearing window?
• Do you know a summary order stays in effect until modified or vacated if no hearing is requested?
• Can you distinguish a cease and desist order (any person, with or without a hearing) from a registration action (registrants only, hearing required except for a summary order)?
• Do you know the 60-day deadline to petition for judicial review of a final order, and that filing does not automatically stay the order?