NASAA Series 63 — All Questions

A company that plans to sell its securities through agents in this state files for registration. What must it file with the Administrator for service of process, and how does service work afterward?

• a.A revocable appointment of any local attorney, with service valid once the Administrator receives a copy of the complaint.
• b.An irrevocable consent naming the Administrator to receive process, with notice and a copy sent by registered mail.✓
• c.A bond of at least $25,000, which the Administrator may draw on if a judgment is entered against the issuer.
• d.An irrevocable consent that makes service complete as soon as process is left at the Administrator's office in the state.

Section 414(g) requires an applicant for registration and an issuer offering through agents to file an irrevocable consent naming the Administrator to receive service of process in any non-criminal action arising under the Act. Service is effective only if the plaintiff forthwith mails notice and a copy by registered mail to the defendant's last address on file and files an affidavit of compliance. Leaving process at the office alone is not enough.Uniform Securities Act §414(g)

A nonresident individual who never registered or filed a consent sells securities to residents of this state by mail in violation of the Act. Can the Administrator serve process on this person within the state?

• a.Yes, because the prohibited conduct appoints the Administrator to receive service, with registered-mail notice.✓
• b.No, because service on a nonresident requires the person to travel to this state and receive the papers in person.
• c.Yes, but only in a criminal proceeding, since civil suits require a written consent filed with the Administrator.
• d.No, because a nonresident who has filed no consent cannot be served within this state under any provision of the Act.

Under Section 414(h), when a person, including a nonresident, engages in conduct prohibited by the Act without having filed a consent, that conduct is equivalent to appointing the Administrator as attorney to receive service in non-criminal actions arising from it. Service is effective only if notice and a copy are sent by registered mail to the last known address and an affidavit of compliance is filed. The provision covers non-criminal proceedings.Uniform Securities Act §414(h)

During an investigation, the Administrator subpoenas a firm's books and records. The firm's owner refuses to comply. What recourse does the Administrator have?

• a.Refer the matter to the SEC, since only a federal agency may compel the production of a firm's books and records.
• b.Impose a fine on the owner directly, since the Administrator may punish refusal of a subpoena without going to court.
• c.Apply to the appropriate court for an order requiring compliance, punishing disobedience as contempt of court.✓
• d.Drop the investigation, because a person may refuse any subpoena that seeks records rather than testimony.

Section 407 lets the Administrator subpoena witnesses and records for an investigation or proceeding, and in case of contumacy or refusal to obey a subpoena, the Administrator may apply to the court, which may order compliance and punish disobedience as contempt. The Administrator does not enforce a subpoena by self-imposed fines.Uniform Securities Act §407(b), (c)

A witness compelled to testify before the Administrator invokes the privilege against self-incrimination. The Administrator compels the testimony anyway. What protection does the witness get under the Act?

• a.The witness is protected only from federal prosecution, because the Act cannot restrict the state's own prosecutions.
• b.The witness is excused from testifying altogether, because the Act recognizes the privilege as grounds to refuse.
• c.The witness gets no protection, because the privilege against self-incrimination yields entirely to the Administrator's investigation.
• d.The witness may not be prosecuted for the matter he was compelled to testify about, apart from perjury or contempt.✓

Section 407(d) says no person is excused from testifying or producing records on the ground of self-incrimination, but no individual may be prosecuted or penalized on account of any matter for which he was compelled, after claiming the privilege, to testify or produce evidence. The witness remains liable for perjury or contempt committed in testifying.Uniform Securities Act §407(d)

The Administrator finds that an unregistered person is actively selling securities in this state and wants to stop it immediately. Which action is available to the Administrator under Section 408?

• a.Issue a cease and desist order with or without a hearing, or sue in court for an injunction.✓
• b.Issue a cease and desist order only after a full hearing and written findings of fact are completed.
• c.Wait until the person has been convicted, then ask a court for an order of restitution.
• d.Seize the person's assets without a court order and hold them until the investigation is finished.

Section 408 lets the Administrator, in his discretion, use either or both of two remedies: a cease and desist order, issued with or without a prior hearing, or an action in court to enjoin the acts or practices. A conviction is not a prerequisite, and asset seizure without a court is not provided. Courts may order rescission, restitution or disgorgement and appoint a receiver.Uniform Securities Act §408

In a Section 408 injunction action, the Administrator asks the court for a temporary injunction against a seller. The seller's lawyer demands that the Administrator post a bond first. What is the rule?

• a.The Administrator must post a bond equal to the amount of the seller's estimated losses.
• b.The Administrator must post a bond only if the injunction is temporary and not permanent.
• c.No bond is required, because the court may not demand one from the Administrator.✓
• d.The bond requirement is waived only if the seller has no assets in this state.

Section 408 provides that, upon a proper showing, the court shall grant a permanent or temporary injunction, restraining order or writ of mandamus, and appoint a receiver or conservator if needed, and that the court may not require the Administrator to post a bond. The Administrator may also seek rescission, restitution or disgorgement.Uniform Securities Act §408

Under the Uniform Securities Act (1956), a person is convicted of willfully selling unregistered securities in violation of the Act. What is the maximum criminal penalty?

• a.A fine of up to $10,000, imprisonment of up to five years, or both.
• b.A fine of up to $1,000, imprisonment of up to one year, or both.
• c.A fine of up to $5,000, with prison only for a repeat offender.
• d.A fine of up to $5,000, imprisonment of up to three years, or both.✓

Section 409(a) of the 1956 Act provides that a person who willfully violates the Act, or a rule or order under it, is on conviction subject to a fine of not more than $5,000 or imprisonment of not more than three years, or both. The penalty does not depend on a prior offense. A criminal case also does not bar the civil remedies in Sections 408 and 410.Uniform Securities Act §409(a)

A broker-dealer violates an Administrator's order without knowing that the order existed. The prosecutor seeks a prison term. What does the Act provide?

• a.Imprisonment is allowed, because ignorance of an administrative order is not a defense under the Act.
• b.Imprisonment is barred only if the broker-dealer corrected the violation within fifteen days of discovering it.
• c.Imprisonment is mandatory, because willfulness is presumed whenever a rule or order is violated.
• d.No person may be imprisoned for violating a rule or order if he proves he had no knowledge of it.✓

Section 409(a) states that no person may be imprisoned for the violation of any rule or order if he proves that he had no knowledge of the rule or order. A fine remains possible on a conviction. The defense is a matter of proof by the defendant, and it does not turn on how quickly the violation was corrected.Uniform Securities Act §409(a)

The Administrator gathers evidence that an agent defrauded several customers and believes criminal charges are warranted. Who prosecutes under the Act?

• a.Only the defrauded customers, who may bring the criminal case in their own names after a civil judgment.
• b.The Administrator may refer the evidence to the attorney general or a district attorney for criminal proceedings.✓
• c.The SEC must take over the case, since a state cannot bring criminal proceedings for violations of the antifraud provisions.
• d.The Administrator prosecutes the case directly in criminal court, because only the Administrator may enforce the Act.

Section 409(b) lets the Administrator refer available evidence of violations to the attorney general or the proper district attorney, who may, with or without a referral, institute the appropriate criminal proceedings under the Act. The Administrator administers civil and administrative remedies rather than prosecuting crimes.Uniform Securities Act §409(b)

A buyer sues a seller under Section 410(a)(2), claiming the seller sold shares by means of a material misstatement. The buyer did not know of the misstatement. On whom does the burden of proof fall regarding the seller's knowledge?

• a.The buyer, who must prove that the seller actually knew about the misstatement at the time the shares were sold.
• b.The seller, who must prove he did not know, and with reasonable care could not have known, of the untruth.✓
• c.The Administrator, who must first certify that the seller acted willfully before the buyer may bring any suit.
• d.Neither party, because liability under Section 410(a) is strict, so the seller's knowledge is not an issue at all.

Under Section 410(a), a seller who sells in violation of Section 301 or by means of an untrue statement or omission of material fact is liable to the buyer unless the seller sustains the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of the untruth or omission. The statute shifts that burden to the seller, though it is not strict liability.Uniform Securities Act §410(a)

A buyer who purchased securities sold in violation of Section 301 still holds them and sues. What may the buyer recover under Section 410(a)?

• a.Triple the consideration paid, less any income received, whether or not the buyer tenders the security.
• b.The consideration paid plus interest, costs and attorneys' fees, less income received, on tender of the security.✓
• c.Only the loss in the market value of the securities, since the Act does not provide for rescission of a sale.
• d.Only the consideration paid, since interest, costs and attorneys' fees are not recoverable under the Act.

Section 410(a) lets the buyer sue for the consideration paid, interest, costs and reasonable attorneys' fees, less the income received on the security, upon tender of the security, or for damages if the buyer no longer owns it. The remedy is rescission, not a multiple of the price, and interest and fees are part of the recovery.Uniform Securities Act §410(a)

An agent materially aids a broker-dealer in selling securities by means of an untrue statement. A buyer wins a judgment against the broker-dealer. Can the buyer also recover from the agent?

• a.No, because an agent is liable only when the firm that employs the agent has no assets to pay the judgment.
• b.No, because only the person who actually sold the security to the buyer can be sued under the civil liability provisions.
• c.Yes, since an agent who materially aids the sale is jointly and severally liable unless he proves he did not know.✓
• d.Yes, but only for half of the judgment, since liability among those who aid the conduct is divided equally.

Section 410(c) imposes joint and several liability on persons who control a liable person, partners, officers and directors, employees who materially aid the conduct, and every broker-dealer or agent who materially aids it, unless the person proves he did not know, and in the exercise of reasonable care could not have known, of the facts. Contribution among those liable is provided, but not a fixed half share.Uniform Securities Act §410(c)

A buyer purchased securities by means of a misstatement on March 1 of Year 1. The buyer discovered the misstatement on March 1 of Year 2. By what date must the buyer sue under Section 410?

• a.March 1 of Year 7, which is six years after the date of the contract of sale itself.
• b.March 1 of Year 3, which is only two years after the date of the contract of sale.
• c.March 1 of Year 4, when both the three-year and the two-years-after-discovery periods expire.✓
• d.March 1 of Year 5, which is three years after the date the buyer discovered the facts.

Section 410(f) bars a suit brought more than three years after the contract of sale, or after two years from discovery of the facts, whichever first occurs. Three years from March 1 of Year 1 ends March 1 of Year 4, while two years from discovery would end March 1 of Year 4 as well, so both periods expire on the same date. The longer deadlines in the other choices do not exist in the statute.Uniform Securities Act §410(f)

A buyer who still owns the securities receives a written offer from the seller to refund the full price with interest, less income received. The buyer takes no action for 45 days and then sues. What is the result?

• a.The suit is barred only if the buyer accepted the offer in writing within sixty days of receiving it.
• b.The suit may proceed, because a refund offer does not affect the buyer's right to sue until the court approves it.
• c.The suit is barred, because the buyer did not accept the refund offer within thirty days of receiving it.✓
• d.The suit may proceed, because the buyer has three years from the sale to decide whether to accept the offer.

Section 410(g) bars a suit by a buyer who, while owning the security, received a written offer before suit to refund the consideration with interest, less income received, and failed to accept it within thirty days of receipt. Forty-five days exceeds the period. The three-year limitations period in subsection (f) is a separate rule and does not extend the offer's thirty days.Uniform Securities Act §410(g)

A subscription agreement for private securities says the investor waives all rights under the state securities act and agrees not to sue for any misrepresentation. How is this clause treated?

• a.It is valid, because an investor who signs the agreement knowingly gives up the right to bring a civil claim.
• b.It is void, because any provision binding a purchaser to waive compliance with the Act or a rule under it is void.✓
• c.It is void only to the extent that it bars claims for fraud, and it remains valid for other violations.
• d.It is valid, but only if the investor is accredited and signs the waiver in the presence of a witness.

Section 410(i) declares void any condition, stipulation or provision binding a person acquiring a security or receiving investment advice to waive compliance with any provision of the Act or any rule or order under it. The investor's sophistication or the presence of a witness is irrelevant. The clause is void in its entirety.Uniform Securities Act §410(i)

A buyer who knew a contract of sale violated the Act at the time it was made later tries to enforce the contract by suing the seller for specific performance. Can the buyer base the suit on the contract?

• a.Yes, because the buyer is the person the Act is meant to protect and may enforce any contract it makes.
• b.Yes, because the Act voids only those contracts of sale that were made through unregistered agents.
• c.No, because the Act forbids the buyer from suing the seller for any reason once a sale has been completed.
• d.No, because a party to a contract made in violation of the Act, with knowledge of the facts, cannot sue on it.✓

Section 410(h) provides that a person who has made or engaged in the performance of a contract in violation of the Act, or who acquired purported rights under it with knowledge of the facts making it a violation, may not base any suit on the contract. The Act protects buyers who sue under Section 410(a), but not those who knowingly take part in an illegal contract.Uniform Securities Act §410(h)

The Administrator enters a final order revoking an agent's registration. The agent files a petition for judicial review 20 days later. Does the filing suspend the effect of the order?

• a.No, because commencing review proceedings does not stay the order unless the court specifically orders it.✓
• b.No, because a petition filed after fifteen days is untimely and the court has no authority to review the order.
• c.Yes, because a petition filed within thirty days stays any order that revokes a registration.
• d.Yes, because the order is automatically stayed until the court has issued its decision on the petition.

Under Section 411, a person aggrieved by a final order may petition for review within sixty days after its entry, so twenty days is timely. Commencing proceedings does not operate as a stay unless the court specifically so orders. The agent's registration therefore stays revoked unless the court grants a stay.Uniform Securities Act §411

A broker-dealer sells securities in conformity with an Administrator's published rule. Later, a court finds the rule invalid. Can the broker-dealer be held liable under the Act for sales made in good faith under the rule?

• a.Yes, because a rule that is held invalid never existed, so the broker-dealer acted without any lawful authority.
• b.No, but only for sales completed before the rule was challenged in court by an interested person or by the Administrator.
• c.Yes, but only civil liability, since criminal penalties are excluded for acts done in conformity with a rule.
• d.No, because good-faith acts in conformity with a rule carry no liability, even if the rule is later held invalid.✓

Section 412(e) provides that no provision of the Act imposing liability applies to any act done or omitted in good faith in conformity with a rule, form or order of the Administrator, even if it is later amended, rescinded or found invalid for any reason. The protection is not limited to civil liability and does not turn on when a challenge was filed.Uniform Securities Act §412(e)

In an administrative hearing against an agent, the agent asks that the hearing be closed to the public. The Administrator's staff objects. How must the Administrator rule?

• a.The hearing must be public in every case, because the Act allows the Administrator no discretion over closure.
• b.The hearing may be closed on the staff's own motion, since confidential matters are always held in private.
• c.The hearing is public unless the Administrator grants a request joined in by all respondents for a private hearing.✓
• d.The hearing must be closed, because every request made by a respondent for privacy must be granted outright.

Section 412(f) makes every administrative hearing public unless the Administrator, in his discretion, grants a request joined in by all the respondents that the hearing be private. The decision belongs to the Administrator, and the staff cannot close the hearing by its own motion. One respondent's request is not sufficient where there are several.Uniform Securities Act §412(f)

A reporter asks the state securities office to see its register of registrations, exemption notices and orders. May the Administrator refuse, saying the register is confidential?

• a.Yes, because the register is open only to registered broker-dealers and investment advisers in the state.
• b.Yes, because the files of the Administrator are confidential and may be disclosed only to law enforcement agencies.
• c.No, because the Administrator must keep a register of such filings and orders available for public inspection.✓
• d.No, but only for orders, since applications and exemption notices must be kept private to protect the filers.

Section 413(b) requires the Administrator to keep a register of applications and registration statements, exemption notices, orders, and interpretative opinions or no-action determinations, and says the register is available for public inspection. Information that has not been made public is protected by Section 406(b), which is a separate rule.Uniform Securities Act §413

An agent tells a prospect, 'This fund is registered with the state, so the Administrator has reviewed it and approved it as a sound investment.' What is wrong with the statement?

• a.It is lawful, because registration by qualification carries an approval that registration by coordination does not.
• b.It is unlawful only if the fund later falls in value and the prospect suffers a loss in the first year.
• c.It is lawful, because the Administrator reviews the merits of each security before it can be registered in the state.
• d.It is unlawful, because registration is not a finding or approval of the merits, and saying otherwise is prohibited.✓

Section 405 states that the fact of registration, or of an available exemption, is not a finding that any filed document is true, complete and not misleading, and that the Administrator has not passed on the merits or given approval. Under Section 405(b), it is unlawful to make a representation inconsistent with that to a prospective purchaser, customer or client. Loss is not needed.Uniform Securities Act §405

An investment adviser recommends that a client buy bonds that the adviser itself holds in its own inventory, intending to sell them to the client as principal. What must the adviser do before completing the sale?

• a.Obtain only the consent of the adviser's compliance officer, because the client's consent is not required.
• b.Disclose in writing the capacity in which it is acting and obtain the client's consent to the transaction.✓
• c.Disclose orally, since written disclosure applies only to transactions in which the adviser acts as broker.
• d.Nothing, because a principal transaction with an advisory client is always permitted if the price is fair.

Section 102(a)(3) makes it unlawful for an adviser, acting as principal for its own account, to knowingly sell a security to a client without disclosing in writing before completion of the transaction the capacity in which it is acting and obtaining the client's consent. A fair price does not remove the requirement. The same applies when the adviser acts as broker for another person.Uniform Securities Act §102(a)(3)

The administrator suspects that a person outside the state has been selling securities to state residents without registering. What investigative authority does the Act give?

• a.Investigations outside the state only through the securities administrator of that other state
• b.Public or private investigations inside or outside the state, as the administrator considers necessary✓
• c.Investigations only inside the state, and only after a customer files a written complaint
• d.Public investigations only, because private inquiries require a court order to proceed

The administrator may make public or private investigations within or outside the state as necessary to determine whether a violation has occurred or is about to occur, and may require written statements and publish information about violations. No complaint is required, private inquiries are permitted, and out-of-state investigation does not depend on another state's administrator.Uniform Securities Act (1956) §407(a)

A witness ignores the administrator's subpoena to produce records. What may the administrator do?

• a.Do nothing, because a subpoena issued in an investigation has no enforcement mechanism
• b.Apply to a court, which may order compliance and punish disobedience as contempt of court✓
• c.Have the witness arrested by the administrator's own staff and held until the records are produced
• d.Fine the witness directly, up to $5,000 for each day that the records are withheld from the staff

On a witness's refusal to obey a subpoena, the administrator applies to the court, which may issue an order requiring the person to appear and produce evidence, and failure to obey that order may be punished as contempt. The administrator cannot itself fine or arrest, and the subpoena is enforceable through the court.Uniform Securities Act (1956) §407(c)

A witness called by the administrator declines to answer, citing the privilege against self-incrimination. Under the Act:

• a.The witness must testify, but may not be prosecuted for what is disclosed, except for perjury or contempt✓
• b.The witness must testify, and the testimony may be used against the witness in a later prosecution
• c.The witness must testify, and the testimony is shielded even if the witness lies under oath
• d.The witness may refuse to testify, because the privilege applies fully in administrative inquiries

No person is excused from testifying or producing records on the ground of self-incrimination, but no individual may be prosecuted or penalized on account of the matter after claiming the privilege and being compelled to testify, except for perjury or contempt committed in testifying. The privilege does not allow refusal, the testimony is protected from use in prosecution, and the protection does not cover false testimony.Uniform Securities Act (1956) §407(d)

Under §408, how may the administrator proceed when it issues a cease and desist order?

• a.It may be issued without a hearing only for the sale of an unregistered security in the state
• b.It may be issued only after a hearing and written findings, and only a court may grant an injunction
• c.It may be issued with or without a prior hearing, and the administrator may also seek an injunction✓
• d.It may be issued only after a criminal conviction, and it takes the place of any injunction

Section 408 lets the administrator, in discretion, issue a cease and desist order with or without a prior hearing, or bring an action to enjoin the acts, or both. A hearing is not required before the order, a criminal conviction is not a precondition, and the no-hearing option is not limited to unregistered securities.Uniform Securities Act (1956) §408

In an action the administrator brings to enjoin a violation, what may the court do?

• a.Grant an injunction only if the administrator posts a bond equal to the defendant's alleged gains from the sales
• b.Order restitution only, since an injunction against future conduct is left to the administrative hearing process
• c.Grant an injunction only, since receivership and restitution require a separate criminal case against the defendant
• d.Grant an injunction, appoint a receiver, and order restitution, with no bond required of the administrator✓

On a proper showing the court may grant a permanent or temporary injunction, restraining order, or writ of mandamus, appoint a receiver or conservator, and order rescission, restitution, or disgorgement. The court may not require the administrator to post a bond, so a bond tied to alleged gains is wrong. Receivership and restitution do not depend on a criminal case, and the court itself can enjoin future conduct without waiting for an administrative hearing.Uniform Securities Act (1956) §408(b)

A person is convicted of willfully violating the registration requirement. What is the maximum criminal penalty under the Act?

• a.A fine of up to $1,000, imprisonment of up to one year, or both penalties
• b.A fine of up to $10,000, imprisonment of up to five years, or both penalties, per count
• c.A fine of up to $5,000, imprisonment of up to three years, or both penalties✓
• d.A fine of up to $5,000, with imprisonment available only after a second conviction

A person who willfully violates the Act is, on conviction, fined not more than $5,000, imprisoned not more than three years, or both. The Act does not require a prior conviction to impose imprisonment, and the other amounts and terms are not the statute's.Uniform Securities Act (1956) §409(a)

An agent violates an administrator's order that the agent did not know existed, and the agent proves that lack of knowledge. Which statement is correct?

• a.The agent is entirely free of liability, since the administrator did not serve the order personally
• b.The agent may not be imprisoned for violating the order, although other penalties may still apply✓
• c.The agent may be imprisoned for up to three years, since knowledge of an order is not an element
• d.The agent may be imprisoned for up to one year, since lack of knowledge only reduces the term

No person may be imprisoned for a violation of a rule or order if the person proves no knowledge of it, but the Act does not otherwise excuse the violation, and fines and administrative action remain possible. The knowledge defense removes imprisonment altogether rather than shortening it, and it does not erase all liability.Uniform Securities Act (1956) §409(a)

The administrator finds evidence of willful fraud in a securities sale. Which statement describes the administrator's role in criminal enforcement?

• a.The administrator prosecutes criminal cases directly before the administrative hearing officer
• b.The administrator may refer the evidence to the attorney general or district attorney, who may prosecute anyway✓
• c.The administrator may refer the evidence, but only federal authorities prosecute securities crimes
• d.The administrator may not refer any evidence until the civil remedies have all been completed

The administrator may refer available evidence of violations to the attorney general or the proper district attorney, who may institute criminal proceedings with or without such a referral. Criminal prosecution is not conducted by the administrator, is not limited to the federal government, and does not wait for civil remedies to finish.Uniform Securities Act (1956) §409(b)

A buyer paid $20,000 for a security sold in violation of the registration requirement, received $1,500 in income on it, and still owns it. What may the buyer recover?

• a.Only the $1,500 of income, because the buyer still owns the security and has suffered no loss
• b.The $20,000 plus the income, costs, and attorneys' fees, without a tender of the security
• c.The $20,000 paid plus interest, costs, and attorneys' fees, less the $1,500, upon tendering the security✓
• d.Only the difference between the price paid and the security's market value on the date of suit

A buyer may recover the consideration paid plus interest, costs, and reasonable attorneys' fees, less income received, on tendering the security, or damages if the security is no longer owned. The remedy requires the tender and subtracts the income, and it is not a market-value difference. The liability does not require proof of fraud in a registration violation.Uniform Securities Act (1956) §410(a)

A buyer bought stock on January 10, 2021, and discovered on March 5, 2023 that the sale was unlawful. By what date must a civil suit under §410 be filed?

• a.January 10, 2024, since three years from the sale comes before two years from discovery✓
• b.January 10, 2026, since five years from the sale is the outside limit that governs all such suits
• c.March 5, 2024, since one year from the date of discovery is the controlling limit
• d.March 5, 2025, since two years from discovery is the later and therefore controlling date

No suit may be brought more than three years after the contract of sale, or two years after discovery of the facts, whichever first occurs. Three years from January 10, 2021 is January 10, 2024, while two years from discovery is March 5, 2025, so the earlier date controls. The statute is not a five-year or one-year period.Uniform Securities Act (1956) §410(f)

A seller sends a buyer who still owns the security a written offer to refund the price plus interest, less income received. The buyer ignores the offer for 45 days and then sues. What is the result?

• a.The buyer may sue, since the period to accept a refund offer is sixty days
• b.The buyer may sue, since a refund offer never affects the right to bring suit
• c.The buyer may not sue, since the offer was not accepted within thirty days of receipt✓
• d.The buyer may sue only for damages, since the offer limits recovery but does not bar suit

No person may sue under the section if the buyer, while owning the security, received a written offer to refund the consideration with interest less income and failed to accept it within thirty days of receipt. The buyer's silence for 45 days therefore bars the suit. The acceptance period is thirty days, not sixty, and the refund offer does bar the suit rather than limit the damages.Uniform Securities Act (1956) §410(g)

A broker-dealer is liable to a buyer for selling an unregistered security. Who else may be jointly and severally liable?

• a.Only the broker-dealer itself, since the Act creates liability for the firm and never for individuals within it
• b.All employees of the broker-dealer, whether or not they took part, with no defense of lack of knowledge
• c.Partners, officers, directors, and control persons, unless they prove they could not have known✓
• d.Only the issuer's attorneys and accountants, who must have signed the registration documents under the Act

Every person who directly or indirectly controls a person liable, including partners, officers, and directors, employees who materially aid the conduct, and broker-dealers or agents who materially aid it, is jointly and severally liable unless able to prove that they did not know and in the exercise of reasonable care could not have known of the facts. Liability is not confined to the firm itself, is not limited to attorneys and accountants, and does not run to every employee regardless of the lack-of-knowledge defense.Uniform Securities Act (1956) §410(c)

A customer's account agreement says the customer waives any right to sue under the state securities law. What is the effect of this clause?

• a.It is valid, since a customer may waive any right by signing a clear written agreement with the firm
• b.It is valid, but only for claims that are less than the amount the customer invested
• c.It is void only if the customer is an individual rather than an institutional investor
• d.It is void, because a stipulation to waive compliance with the Act or a rule is unenforceable✓

Any condition, stipulation, or provision binding a person acquiring a security or receiving investment advice to waive compliance with the Act or any rule or order is void. The clause is not saved by a clear writing or by the size of the claim, and the voidness is not limited to retail customers.Uniform Securities Act (1956) §410(i)

An investment adviser is paid for advice and uses a scheme to defraud a client. What is the adviser's civil liability under §410(b)?

• a.Liability limited to refunding the advisory fee to the client, with no interest, costs, or attorneys' fees
• b.Liability only to the administrator, who then distributes any recovery among the affected clients
• c.No civil liability under §410, since it applies only to sales of securities and not to advisory services
• d.Liability for the fee paid and any loss caused by the advice, plus interest, costs, and attorneys' fees, less income✓

An adviser who defrauds a compensated client is liable to that person for the consideration paid for the advice and any loss due to the advice, with interest, costs, and reasonable attorneys' fees, less income received from the advice. Section 410(b) specifically addresses advisers, and the recovery runs to the client and not to the administrator.Uniform Securities Act (1956) §410(b)

A broker-dealer wishes to challenge a final order of the administrator revoking its registration. Within what period must it file a petition for review in court?

• a.Within one year after the hearing record closes
• b.Within sixty days after the order is entered✓
• c.Within thirty days of the date it becomes final
• d.Within ninety days after notice is mailed out

A person aggrieved by a final order of the administrator may obtain review in the appropriate court by filing a written petition within sixty days after the order is entered. The court reviews on the administrative record, and findings of fact supported by competent, material, and substantial evidence are conclusive. The period is sixty days running from the date the order is entered, so the thirty-day, ninety-day, and one-year alternatives are wrong, and finality, mailed notice, and the close of the hearing record do not start a different clock.Uniform Securities Act (1956) §411(a)

A firm files a timely petition in court to review an order suspending its registration. What is the effect on the order while the review is pending?

• a.The order is stayed automatically until the court rules on the petition
• b.The order stays in effect unless the court specifically orders a stay✓
• c.The order is stayed for sixty days and then takes effect unless the court extends
• d.The order is void until the administrator proves the grounds again in court

The commencement of review proceedings does not, unless specifically ordered by the court, operate as a stay of the administrator's order. The order therefore continues in effect, and the court must affirmatively grant a stay. No automatic or sixty-day stay exists, and the order is not voided by the filing.Uniform Securities Act (1956) §411(b)

A broker-dealer acts in good faith in conformity with an administrator's rule. A court later finds the rule invalid. What is the firm's liability for the earlier act?

• a.Full liability for the act, since a rule later held invalid gives no protection to a firm that relied on it
• b.None, since good-faith acts in conformity with a rule are protected even if the rule is later held invalid✓
• c.Liability only for the portion of the activity that occurred after the court's decision
• d.Liability unless the firm obtained a written opinion from the administrator before acting

No provision of the Act imposing liability applies to an act done or omitted in good faith in conformity with a rule, form, or order, even if it is later amended, rescinded, or held invalid. The protection does not require a written opinion and is not limited to the period after a court ruling.Uniform Securities Act (1956) §412(e)

In an administrative hearing, what is the general rule about public access, and the exception?

• a.Hearings are public unless any single respondent files a request that the hearing be held privately
• b.Hearings are private unless the administrator decides to open them to the general public
• c.Hearings are always public, and the administrator has no power to grant a request for a private hearing
• d.Hearings are public unless the administrator grants a request joined in by all respondents✓

Every hearing in an administrative proceeding is public unless the administrator, in discretion, grants a request joined in by all the respondents that it be held privately. One respondent's request is not enough, and the exception exists.Uniform Securities Act (1956) §412(f)

A broker-dealer asks the administrator whether a planned activity would lead to enforcement. The administrator replies in writing that no enforcement will follow. This reply is called:

• a.A no-action determination, which the administrator may issue and for which a fee may be charged✓
• b.A stop order, which blocks a registration statement and must follow notice and a hearing
• c.A cease and desist order, which prohibits the activity that the request described
• d.A consent order, which the parties sign and which becomes a court judgment once filed

The administrator in discretion may honor requests for interpretative opinions or may issue determinations that no enforcement proceedings will be instituted against specified persons for specified activities, and may charge a fee. A stop order concerns registration statements, a consent order is not the Act's term, and a cease and desist order prohibits conduct rather than approving it.Uniform Securities Act (1956) §413(e)

An out-of-state firm mails a written offer to buy a security from a state resident, and the resident receives it in the state. Where is the offer made?

• a.In the state only if the firm also has a registered agent working in the state
• b.In the state, because the offeror directed it to the state and it was received there✓
• c.Not in the state, because the offeror was physically outside the state when it mailed the offer
• d.Not in the state, because an offer is made only where the offeree accepts it

An offer is made in the state, whether or not either party is present there, when it originates from the state or is directed by the offeror to the state and received at the place to which it was directed. The offeror's location, the place of acceptance, and the presence of an agent are not the test.Uniform Securities Act (1956) §414(c)

A state resident, while on vacation in another state, telephones a broker-dealer based in a third state and accepts its offer to sell. Is the offer accepted in the resident's home state?

• a.No, because acceptance occurs only where the securities are physically delivered
• b.Yes, because any acceptance by a resident is accepted in the resident's home state
• c.Yes, because the buyer lives in the state and the securities will be delivered there
• d.No, because the acceptance was first communicated outside the home state✓

An offer is accepted in the state when acceptance is communicated to the offeror in the state and has not previously been communicated outside the state. Here the acceptance was communicated to the offeror outside the home state, so the home state does not treat it as accepted there. Residence of the buyer and the place of delivery are not the test.Uniform Securities Act (1956) §414(d)

A newspaper published in another state has 90 percent of its circulation outside the state where an investor lives, and a small number of copies are delivered into the investor's state. Is a securities advertisement in that newspaper an offer made in the investor's state?

• a.Yes, unless the newspaper first files a copy of the advertisement with the administrator in the investor's state
• b.No, but only if the advertisement was approved by the SEC before the newspaper published it
• c.Yes, because any copy delivered to a resident makes the advertisement an offer in the state where it is read
• d.No, because a bona fide, regularly paid-circulation newspaper published elsewhere makes no offer there✓

An offer is not made in the state when the publisher circulates, or it is circulated on the publisher's behalf in the state, a bona fide newspaper or publication of general, regular, and paid circulation that is not published in the state, or is published in the state but has had more than two-thirds of its circulation outside the state in the past twelve months. A few delivered copies, a state filing, or SEC approval do not change the result.Uniform Securities Act (1956) §414(e)

An investment adviser in another state, who is not registered where a client lives, telephones advice into that state. When does the state's investment adviser provision apply to the adviser's conduct?

• a.Only when the client first files a written complaint with the state's administrator
• b.When any act instrumental to the conduct is done in the state, even if neither party is present there✓
• c.Only when both the adviser and the client are physically present in the state during the advice
• d.Only when the adviser maintains a place of business or a branch office in the state

Sections 102 and 201(c), and §405 as to advisers, apply when any act instrumental in effecting prohibited conduct is done in the state, whether or not either party is then present in the state. Physical presence of both parties, a place of business, and a prior complaint are not required.Uniform Securities Act (1956) §414(f)

An applicant for broker-dealer registration must file what, in addition to its application, relating to lawsuits?

• a.An irrevocable consent appointing the administrator to receive service in non-criminal actions✓
• b.A surety bond equal to the firm's net capital, held to cover any judgments entered against it in the state
• c.A revocable consent allowing service on the administrator only for civil suits brought by customers of the firm
• d.A written agreement to submit every dispute with a customer to binding arbitration before a panel in the state

Every applicant for registration, and every issuer proposing to offer securities through an agent, must file an irrevocable consent appointing the administrator to receive service of any lawful process in any non-criminal suit, action, or proceeding arising under the Act. The consent is irrevocable, a bond is a different requirement, and arbitration is not mandated by the section.Uniform Securities Act (1956) §414(g)

A nonresident who never filed a consent to service commits fraud in connection with sales into the state. How can the state obtain jurisdiction in a civil action?

• a.Only after the nonresident enters the state voluntarily and is then served there in person
• b.It cannot, since no court in the state has jurisdiction over a nonresident who never filed a written consent
• c.Only through the nonresident's home state, whose administrator must bring its own action first
• d.The conduct counts as appointing the administrator to receive service, with notice mailed to the defendant✓

When a person, including a nonresident, engages in conduct prohibited or made actionable by the Act and has not filed a consent, that conduct is considered equivalent to appointing the administrator to receive service, and notice is sent to the defendant at the last known address. The state does not need the home state to act first or require personal service in the state.Uniform Securities Act (1956) §414(h)

An employee of the administrator's office uses non-public information from a registration filing to buy securities personally. This conduct is:

• a.Unlawful, since staff may not use for personal benefit information that is not public✓
• b.Lawful, since the employee is not a registrant and owes no duty to anyone under the Act
• c.Unlawful only if the employee actually earns a profit on the personal purchase
• d.Lawful if the employee buys only securities of issuers that are located in another state

It is unlawful for the administrator or any officer or employee to use for personal benefit any information filed with or obtained by the administrator that is not made public. The prohibition applies to the staff directly, and it does not depend on the issuer's location or on whether a profit results.Uniform Securities Act (1956) §406(b)

A broker-dealer mails its registration renewal on December 29. The administrator's office receives it on January 3. For purposes of the Act, when was the renewal filed?

• a.On December 29, because a document is filed on the day it is deposited in the mail
• b.On December 31, because every renewal received late is treated as made at year-end
• c.On January 10, because filings are effective seven days after receipt by the office
• d.On January 3, because a document is filed when the administrator receives it✓

A document is filed when it is received by the administrator, so mailing does not complete the filing. The renewal filed on January 3 arrives after the December 31 expiration. There is no year-end deeming rule or seven-day delay.Uniform Securities Act (1956) §413(a)

An agent applicant was convicted 12 years ago of a misdemeanor involving a security and 6 years ago of a felony unrelated to securities. On which conviction may the Administrator base a denial, assuming a public-interest finding?

• a.Only the securities misdemeanor, because convictions in the securities business have no time limit
• b.Both convictions, because a felony or a securities misdemeanor is disqualifying however long ago it occurred
• c.Only the felony conviction, because the securities misdemeanor falls outside the ten-year look-back period✓
• d.Neither conviction, because the ground reaches only convictions that occurred within the past five years

Conviction of any felony, or of a misdemeanor involving a security, is a ground only if it occurred within the past ten years. The 12-year-old misdemeanor is outside that window and the 6-year-old felony is inside it. No five-year limit applies, and the felony need not relate to securities.Uniform Securities Act (1956, as amended by NASAA) §204(a)(2)(C)