Authority of the State Securities Administrator
Before you can understand what happens when someone breaks securities law, you need to know who enforces it at the state level and what tools they have.
The Administrator's Role
- The state securities administrator is responsible for administering and enforcing the state securities act within their jurisdiction
- Each state has one. The title varies (Commissioner, Director, Secretary of State), but the powers are the same under the Uniform Securities Act (USA)
- The administrator's authority comes from several USA sections: Section 204 (general authority), Section 406-407 (investigations), and Section 412 (rulemaking)
General Powers
The administrator has broad authority to carry out the Uniform Securities Act:
- Administer and enforce the state securities act
- Make, amend, and rescind rules, forms, and orders necessary to carry out the act
- Conduct investigations and examinations (both public and nonpublic)
- Issue subpoenas to compel testimony and production of documents
- Seek injunctions in court to restrain violations
- Publish information concerning violations
- Issue cease and desist orders to stop ongoing or imminent violations
Rulemaking Authority (USA Section 412)
- The administrator may make rules and forms necessary to carry out the provisions of the act
- Rules have the force of law; they are not suggestions
- No rule may be inconsistent with the Uniform Securities Act itself
- Rules apply generally to all persons; orders apply to specific circumstances or individuals
Exam Tip: Gotchas
- Rules and orders are different. A rule applies broadly (like a regulation), while an order applies to a specific person or situation. The administrator can issue both.
Investigatory Powers (USA Sections 406-407)
The administrator's investigatory powers are extensive:
- May investigate both within and outside the state
- Can require any person to file a written statement under oath concerning any matter relevant to an investigation
- Can compel appearance and testimony under oath
- Can compel production of books, records, and documents
- May apply to a court for enforcement of subpoenas if a person refuses to comply
- Can share information with other state regulators, federal regulators (like the SEC), criminal law enforcement, and foreign regulators
Exam Tip: Gotchas
- The administrator can investigate outside the state's borders. Jurisdiction for investigations is broader than you might expect: the administrator is not limited to investigating people or activities physically within the state.
What the Administrator CANNOT Do
This is a frequently tested distinction. The administrator has broad powers, but there are clear boundaries:
| The Administrator CAN | The Administrator CANNOT |
|---|---|
| Deny, suspend, or revoke registrations | Impose fines or financial penalties |
| Issue cease and desist orders | Impose jail sentences or arrest anyone |
| Issue subpoenas and compel testimony | Issue injunctions directly (must go through a court) |
| Refer cases for criminal prosecution | Bring criminal charges (that's the attorney general/prosecutor) |
| Seek injunctions through court | Award damages to injured investors (that's a civil court) |
| Make rules and orders | Make rules inconsistent with the USA |
Exam Tip: Gotchas
- The administrator CANNOT impose fines, jail time, or award damages. These are the three most common wrong answers on the exam. The administrator's remedies are administrative (registration actions and cease and desist orders). Fines and imprisonment come from courts. Damages come from civil lawsuits. Criminal charges come from the attorney general or local prosecutor.