NASAA Series 63 — All Questions

In investigating a suspected violation, the Administrator may:

• a.Conduct investigations inside or outside the state, administer oaths, subpoena witnesses and records, and require written statements under oath✓
• b.Require testimony but never demand documents
• c.Compel testimony only after obtaining a criminal indictment, provided the customer is furnished the required written confirmation and the details are recorded on the books the firm must maintain
• d.Act only within the borders of his or her own state

The act grants broad investigative authority: the Administrator may investigate in or outside the state, publish information about violations, administer oaths, compel attendance of witnesses, and require the production of books, papers, and other records. These powers do not depend on a criminal charge. If a person refuses to comply, the Administrator asks a court to compel obedience through its contempt power.Uniform Securities Act

Which statement about a cease and desist order is correct?

• a.It may be issued only after a full hearing on the merits, provided the firm files the required consent to service of process and the Administrator does not enter an order to the contrary
• b.The Administrator may issue it with or without a prior hearing, but must go to court to obtain an injunction enforcing it✓
• c.It may be issued only against registered persons
• d.It automatically revokes the recipient's registration, since the Administrator generally treats this as a routine matter resolved through the state's ordinary coordination procedures

The Administrator may issue a cease and desist order with or without a prior hearing to stop conduct that violates the act, subject to the recipient's right to request a hearing. The Administrator cannot enforce the order directly; obtaining an injunction or other coercive relief requires applying to a court. Revocation is a separate proceeding, and the antifraud reach of the act extends to unregistered persons as well.Uniform Securities Act

Before denying, suspending, or revoking a registration, the Administrator must generally find that:

• a.The registrant has been convicted of a felony
• b.The registrant has caused a customer to lose money
• c.A majority of the registrant's customers have complained
• d.The order is in the public interest and a statutory ground exists, after appropriate notice, an opportunity for hearing, and written findings of fact and conclusions of law✓

Disciplinary orders require both a public interest finding and one of the enumerated statutory grounds, such as a material misstatement in an application, a securities-related conviction, an injunction, or a violation of the act. Procedural protections include prior notice, an opportunity for a hearing, and written findings. Customer losses and complaint counts may be evidence but are not themselves the legal standard.Uniform Securities Act

The Administrator believes immediate action is needed against a registrant while a proceeding is pending. The Administrator may:

• a.Do nothing until a final order is entered
• b.Have the registrant arrested pending the outcome
• c.Summarily postpone or suspend the registration pending final determination, provided prompt written notice is given and a hearing is promptly scheduled if requested✓
• d.Order the registrant to pay restitution without any hearing

The act permits a summary postponement or suspension of a registration while a proceeding is pending, balanced by the requirement of prompt written notice of the order and the reasons for it, plus a hearing within a short period if the affected person requests one. Waiting helplessly for a final order would defeat the purpose of the emergency power. Arrests and criminal sanctions are for courts, not the Administrator.Uniform Securities Act

Under the Uniform Securities Act as commonly adopted, a person convicted of a willful violation of the act faces criminal penalties of:

• a.Life imprisonment with no fine
• b.A fine imposed directly by the Administrator, with no court involvement, so long as written notice describing the arrangement is delivered to the Administrator within the time fixed by rule for that category
• c.A fine, imprisonment, or both, with prosecution generally required to begin within five years of the alleged violation✓
• d.No criminal exposure, because the act provides only civil remedies

Willful violations are criminal offenses punishable by a fine, imprisonment, or both, and the act sets a statute of limitations of five years from the alleged violation for beginning a prosecution. Criminal cases are brought in court by the appropriate prosecuting authority, not decided by the Administrator. Proof of willfulness means proof that the person intended the act, though not that the person knew it was unlawful.Uniform Securities Act

An investor buys a security in a sale that violated the registration provisions of the act. In a civil suit, the investor may generally recover:

• a.The consideration paid plus interest, less any income received on the security, together with costs and reasonable attorney's fees, upon tender of the security✓
• b.Only the difference between the purchase price and the current market price
• c.Triple the amount invested as punitive damages
• d.Nothing, because civil remedies are unavailable under the act

The civil liability provision makes the buyer whole by returning the purchase price plus interest, reduced by income already received, along with court costs and reasonable attorney's fees, in exchange for tendering the security back. If the investor no longer owns it, damages are calculated in a comparable way. The act's remedy is restitutionary rather than a punitive multiple of the investment.Uniform Securities Act

A broker-dealer discovers it sold securities in violation of the act and sends the purchaser a written offer of rescission. Which statement is correct?

• a.The offer must be accompanied by a cash payment before the buyer responds
• b.The purchaser may accept at any time within three years
• c.The purchaser generally loses the right to sue if the written offer, containing the required disclosures and the offer of the price paid plus interest, is not accepted within the period specified by the act✓
• d.The Administrator must approve the offer in advance

A proper rescission offer must be in writing, disclose the violation, and offer to repay the consideration plus interest less income received; a purchaser who does not accept within the statutory response period loses the right to bring the civil action. This gives a firm that self-corrects a way to cut off liability. The offer itself does not require prepayment or prior approval by the Administrator, and it is not open indefinitely.Uniform Securities Act

A registrant disagrees with a final order entered by the Administrator. The registrant may:

• a.Demand a jury trial before the Administrator
• b.Obtain judicial review by filing a petition in the appropriate court within sixty days of the order, though filing generally does not stay the order✓
• c.Appeal directly to the SEC
• d.Ignore the order until the Administrator brings an enforcement action

Final orders are subject to judicial review on a written petition filed within sixty days, and the reviewing court examines the administrative record. Filing the petition does not by itself suspend the order unless the court so directs, so the registrant must comply in the meantime. State administrative orders are not appealed to the SEC, and administrative hearings are conducted without juries.Uniform Securities Act

An Administrator has jurisdiction over an offer or sale when:

• a.The offer originated in the state, or was directed into and received in the state, or the acceptance of the offer took place in the state✓
• b.Only when the transaction was profitable for the seller
• c.Only when both the buyer and the seller reside in the state, an interpretation that several states incorporated when they enacted the later revisions to the uniform act and its accompanying rules
• d.Only when the security involved is registered in the state, on the view that the relevant exemption stays available to the party unless and until the Administrator revokes it by a formal order

Jurisdiction attaches where an offer originates, where it is directed and received, and where an offer to buy or sell is accepted, which is why a single transaction can fall under two states' laws. Residency of both parties is not required. Neither registration of the security nor the seller's profit has any bearing on jurisdiction, and the antifraud provisions reach offers even where no sale occurs.Uniform Securities Act

Regarding records of registered broker-dealers and investment advisers, the Administrator:

• a.May inspect records only after obtaining a search warrant
• b.May by rule require registrants to make and keep specified records and may examine those records within or outside the state, at any reasonable time and as often as necessary✓
• c.May inspect records only during an annual audit announced in advance
• d.May require records but may never inspect them outside the state

The act authorizes the Administrator to prescribe recordkeeping requirements and to conduct reasonably frequent examinations of registrants' records, whether the records are located in the state or elsewhere. Examinations may be announced or unannounced and do not require a warrant, because registration carries consent to inspection. Registrants must also ensure records are preserved for the periods set by rule.Uniform Securities Act

Which statement about the Administrator's rulemaking authority is correct?

• a.Rules take effect only after approval by the SEC
• b.The Administrator may adopt rules but never prescribe forms
• c.Rules may be adopted in secret and enforced immediately
• d.The Administrator may make, amend, and rescind rules, forms, and orders necessary to carry out the act, and rules must be published before they can be enforced✓

The act gives the Administrator broad authority to adopt, amend, and rescind rules and forms and to issue orders as necessary to administer the statute, subject to publication so that regulated persons have notice. No rule may be enforced against a person who had no notice of it. State rules are not submitted to the SEC for approval, though they cannot conflict with preemptive federal law.Uniform Securities Act

Which of the following may the Administrator NOT do?

• a.Issue an injunction or sentence a violator to prison✓
• b.Subpoena records located in another state
• c.Deny an application for registration after notice and an opportunity for hearing
• d.Issue a cease and desist order

Injunctions and criminal sentences are judicial remedies: the Administrator must ask a court for an injunction and must refer evidence to a prosecutor for criminal charges. Administrative powers include denying, suspending, and revoking registrations after notice and an opportunity for hearing, issuing cease and desist orders, and compelling the production of records wherever they are kept. Keeping the administrative and judicial roles straight is a heavily tested distinction.Uniform Securities Act

A non-resident broker-dealer is sued under a state's securities act. Because the firm filed a consent to service of process, legal papers may be:

• a.Served on the Administrator with the same effect as personal service on the firm, with notice forwarded to the firm✓
• b.Served only at the firm's out-of-state headquarters
• c.Served only if the firm still has clients in the state, assuming the applicant has satisfied the net worth, surety bonding, and qualification-examination conditions the Administrator may impose
• d.Ignored unless the firm agrees to appear

The consent to service of process appoints the Administrator as the registrant's attorney to receive service of process in any noncriminal action arising under the act, and service on the Administrator carries the same force as personal service. The Administrator then forwards a copy to the last known address. The consent survives the firm's departure from the state and cannot be disregarded.Uniform Securities Act

After an investigation, the Administrator concludes that a person has willfully violated the act and that criminal charges are appropriate. The Administrator may:

• a.Convene a grand jury without involving prosecutors, provided the customer is furnished the required written confirmation and the details are recorded on the books the firm must maintain
• b.Do nothing, because criminal violations are exclusively federal, a conclusion the NASAA model rules are commonly understood to support for a person already registered and in good standing elsewhere
• c.Refer the evidence to the attorney general or the appropriate prosecuting attorney, who may institute criminal proceedings✓
• d.Impose a prison sentence directly

The Administrator may refer the evidence gathered in an investigation to the attorney general or the proper district or prosecuting attorney, who has discretion to bring criminal proceedings in court. The Administrator has no power to sentence anyone or to convene a grand jury. State securities acts create state criminal offenses, so the matter is not exclusively federal.Uniform Securities Act

An applicant for agent registration has passed the required examination and has no disciplinary history, but the Administrator considers her inexperienced. Under the Uniform Securities Act, the Administrator:

• a.May consider training, experience, and knowledge of the securities business, but may not deny a registration solely on the ground that the applicant lacks experience✓
• b.Must deny the application because experience is a statutory prerequisite
• c.May grant the registration only on the condition that the applicant waive the right to a hearing
• d.May deny the application solely because of the applicant's lack of experience

The act allows the Administrator to weigh an applicant's training, experience, and knowledge of the securities business as part of the qualification determination, but it expressly forbids denying a registration to an individual solely for lack of experience. Experience is therefore a factor rather than a prerequisite. Any provision purporting to waive compliance with the act, including hearing rights, is void.Uniform Securities Act

Under the Uniform Securities Act, a civil action to recover for an unlawful sale of securities must generally be brought within:

• a.One year of the sale, with no discovery extension, a conclusion the NASAA model rules are commonly understood to support for a person already registered and in good standing elsewhere
• b.Ten years of the sale under all circumstances
• c.Six years after discovery only
• d.The earlier of three years after the sale (or contract of sale) or two years after discovery of the violation✓

The civil statute of limitations under the act is the earlier of three years after the sale or contract of sale, or two years after the plaintiff discovered the facts constituting the violation. It should not be confused with the five-year limitation for beginning a criminal prosecution. Some states that adopted later versions vary the exact periods.Uniform Securities Act

When a broker-dealer is civilly liable to a purchaser under the act, which other persons may also be held jointly and severally liable?

• a.Only the issuer of the security, provided the firm files the required consent to service of process and the Administrator does not enter an order to the contrary
• b.Persons who directly or indirectly control the firm, its partners, officers, and directors, and employees or agents who materially aided the sale✓
• c.No one else, because the liability is personal to the firm, provided the customer is furnished the required written confirmation and the details are recorded on the books the firm must maintain
• d.Only the Administrator

Civil liability extends beyond the seller to persons who directly or indirectly control the seller, and to partners, officers, directors, and materially aiding employees or agents, who are jointly and severally liable unless they can sustain the burden of showing they did not know, and could not reasonably have known, of the facts giving rise to liability.Uniform Securities Act

The term 'fraud' as used in the antifraud provisions of the Uniform Securities Act:

• a.Is limited to common-law deceit and requires proof of intent to defraud, since the Administrator generally treats this as a routine matter resolved through the state's ordinary coordination procedures
• b.Applies only to registered securities
• c.Is broader than common-law fraud and is not confined to the elements of common-law deceit✓
• d.Requires proof that the victim actually lost money

The act's concept of fraud, deceit, or manipulation is deliberately broader than common-law fraud and is not limited to its traditional elements. The antifraud provisions reach any security, exempt or not, and apply to offers as well as sales, so proof of a completed loss is not always required.Uniform Securities Act

Under the Uniform Securities Act, no provision imposing liability applies to a person who:

• a.Acted in good-faith conformity with a rule, form, or order of the Administrator, even if it is later amended or rescinded✓
• b.Claims he was simply unaware of the law
• c.Relied on the informal advice of another agent, an interpretation that several states incorporated when they enacted the later revisions to the uniform act and its accompanying rules
• d.Sincerely believed the security was a good investment, so long as written notice describing the arrangement is delivered to the Administrator within the time fixed by rule for that category

The act protects a person who acts in good-faith reliance on a currently effective rule, form, or order of the Administrator, notwithstanding a later amendment or rescission. Ignorance of the law, another agent's informal advice, and honest optimism about a security's merits are not defenses to liability.Uniform Securities Act

Which of the following is a statutory ground for the Administrator to deny, suspend, or revoke a registration?

• a.The applicant has only a few clients
• b.The applicant is a first-time registrant
• c.The applicant was convicted, within the past 10 years, of a felony or a securities-related misdemeanor✓
• d.The applicant charges low fees

Enumerated grounds include a felony conviction within 10 years or a securities-related misdemeanor, insolvency, injunctions, willful violations, dishonest or unethical practices, and false filings, coupled with a public-interest finding (USA §204).

A broker-dealer's principal ignores repeated red flags that an agent is churning accounts. The firm and principal may be disciplined for:

• a.A criminal offense the Administrator may punish with prison
• b.Failure to reasonably supervise, an independent ground for discipline✓
• c.Nothing, because only the agent violated the rules
• d.A private matter only between the customer and the agent

Failure to reasonably supervise agents and employees is itself a ground for disciplinary action against the firm and supervisors, separate from the underlying violation (USA §204; NASAA).

An applicant for agent registration was recently barred by a self-regulatory organization. The Administrator may:

• a.Deny the registration, because being subject to an SRO or another regulator's disciplinary order is a ground for denial✓
• b.Approve automatically because SRO actions are private
• c.Not consider the SRO action at all
• d.Deny only if the SRO action was criminal

An applicant subject to an order of another state's Administrator, the SEC, an SRO, or a foreign regulator within the past 10 years may be denied registration, after notice and an opportunity for hearing (USA §204).

To obtain an injunction and an order of restitution against a person violating the Act, the Administrator must:

• a.Simply issue the injunction administratively
• b.Wait for a criminal conviction first
• c.Apply to a court, which may grant injunctive relief, restitution, disgorgement, and other equitable remedies✓
• d.Refer the matter to the SEC for an injunction

Injunctions and monetary equitable relief such as restitution and disgorgement are judicial remedies; the Administrator applies to a court for them, distinct from its administrative powers (USA §509/§603).

Under the Uniform Securities Act, a willful violation is a criminal offense. Which statement reflects the model level tested?

• a.There is no time limit at all on beginning a prosecution
• b.Only civil remedies exist; there is no criminal exposure
• c.The Administrator personally sentences violators to prison
• d.It is punishable by a fine and/or imprisonment, with prosecution generally begun within five years; the 1956 Act sets lower maximums (about $5,000 and up to 3 years) than the 2002 Act✓

Willful violations are criminal (fine and/or imprisonment), prosecuted in court within a five-year limitations period. The 1956 Act caps penalties lower (about $5,000 / 3 years) than the 2002 Act (higher fine / up to 10 years)—a tested 1956-versus-2002 difference (USA 1956 §409; USA 2002 §508).

In a criminal prosecution under the Uniform Securities Act for violating a rule or order, the defendant:

• a.May not be imprisoned if he proves he had no knowledge of the rule or order✓
• b.Is automatically acquitted by claiming ignorance of the law
• c.Has no available defenses of any kind
• d.Faces only civil liability, never imprisonment

The Act provides that no person may be imprisoned for violating a rule or order of which he had no knowledge; this is narrower than a general 'ignorance of the law' defense and applies to rules and orders, not the statute itself (USA 1956 §409; 2002 §508).

An investor who was sold securities unlawfully has since sold them at a loss. In a civil action under the Uniform Securities Act, the investor may generally recover:

• a.Only his out-of-pocket loss, with no interest
• b.Nothing, because he no longer owns the securities
• c.The tender remedy (price paid plus interest, less income received) reduced by the amount received on resale, plus costs and reasonable attorney's fees✓
• d.Triple damages as a statutory penalty

If the buyer no longer owns the security, recovery is measured as the tender remedy (consideration plus interest less income received) reduced by the value received on the sale, plus costs and reasonable attorney's fees (USA §410/§509).

A seller sends a proper written rescission offer to a buyer who bought securities in a nonexempt, unregistered sale. If the buyer does not accept within the statutory period, the buyer:

• a.Must accept, because rescission is mandatory
• b.Generally loses the right to bring the civil action based on that violation✓
• c.Automatically receives triple damages
• d.May still sue at any time within ten years

A conforming written rescission offer—disclosing the violation and offering the price paid plus interest, less income—cuts off the buyer's civil claim if not accepted within the statutory response period (USA §410/§510).

A person aggrieved by a final order of the Administrator seeks review. Which statement is correct?

• a.The order is stayed automatically upon filing the petition
• b.Review is obtained by petition to the appropriate court within 60 days, and filing the petition does not automatically stay the order✓
• c.A jury retries the facts before the Administrator
• d.Review is by appeal directly to the SEC

Final orders are reviewed by petition to court within 60 days on the administrative record; filing does not stay the order unless the court so orders, and there is no jury before the Administrator (USA §411/§609).

A securities offer is mailed from outside a state and received by a resident within the state. With respect to that offer, the state's Administrator:

• a.Has jurisdiction only if a sale actually results
• b.Has jurisdiction, because an offer directed into and received in the state is made in the state✓
• c.Has no jurisdiction because the offer originated elsewhere
• d.Has jurisdiction only over the mailing state

Jurisdiction attaches where an offer originates, is directed to and received, or is accepted; an offer received in the state is made there, giving that Administrator authority even without a completed sale (USA §414/§610).

The term 'Administrator' under the Uniform Securities Act refers to:

• a.A self-regulatory organization such as FINRA
• b.The state official or agency charged with administering the state securities act✓
• c.The Securities and Exchange Commission
• d.The federal Department of the Treasury

The 'Administrator' is the state securities regulator—official or agency—responsible for administering the state's Uniform Securities Act, not a federal body or SRO (USA §401 'Administrator').

A person served with the Administrator's subpoena refuses to testify. The Administrator may:

• a.Automatically revoke the person's citizenship
• b.Jail the person directly by administrative order
• c.Do nothing, because subpoenas are voluntary
• d.Apply to a court, which may compel compliance and punish refusal as contempt✓

The Administrator cannot itself punish refusal; upon contumacy it applies to a court, which may order compliance and hold a refusing person in contempt (USA §407/§602).

Which action can the Administrator take directly, without first going to court?

• a.Freeze a defendant's bank accounts by its own order
• b.Issue an injunction
• c.Impose a prison sentence
• d.Issue a cease and desist order to stop an ongoing or threatened violation✓

A cease and desist order is an administrative remedy the Administrator may issue directly (with or without a prior hearing); injunctions, imprisonment, and asset freezes are judicial remedies (USA §604/§411).

While a registration proceeding is pending, the Administrator concludes emergency action is warranted. It may:

• a.Summarily postpone or suspend the registration, provided it promptly gives written notice and grants a hearing if requested✓
• b.Take no action until a final order is entered
• c.Permanently revoke the registration without any notice or hearing
• d.Have the registrant arrested

The Administrator may summarily postpone or suspend a registration pending final determination of a proceeding, balanced by prompt written notice and a hearing on request (USA §204).

Under the Uniform Securities Act, the Administrator:

• a.Is forbidden to issue any interpretive guidance
• b.May honor requests for interpretive opinions and may charge a reasonable fee for them✓
• c.Must guarantee the outcome of every transaction
• d.May issue opinions only to federal covered advisers

The Act allows the Administrator to issue interpretive opinions in its discretion and to charge fees; good-faith reliance on a rule, form, or order is also a defense to liability (USA §413/§605).

A customer signs a statement agreeing that her broker-dealer 'need not comply with the state securities act' for her account. This waiver is:

• a.Enforceable if it is notarized
• b.Enforceable if the customer is warned of the consequences
• c.Void, because any condition binding a person to waive compliance with the Act is unenforceable✓
• d.Enforceable for institutional customers

The Act voids any condition, stipulation, or provision binding a person acquiring a security or receiving advice to waive compliance with the Act or its rules (USA §411/§509 nonwaiver).

A firm's officer is sued as a control person for the firm's unlawful securities sale. The officer can avoid liability by:

• a.Proving that the firm was profitable that year
• b.Demonstrating that the security later rose in value
• c.Sustaining the burden of proving he did not know, and in the exercise of reasonable care could not have known, of the facts giving rise to liability✓
• d.Showing that the customer was wealthy

Control persons, partners, officers, directors, and materially aiding employees are jointly and severally liable unless they prove they did not know and could not reasonably have known of the facts creating liability (USA §410/§509).

Regarding the civil statute of limitations under the Uniform Securities Act, which statement is accurate?

• a.There is no limitations period for civil actions
• b.Both acts allow ten years with no discovery rule
• c.The 1956 Act allows suit within the earlier of three years after the sale or two years after discovery, while the 2002 Act generally uses the earlier of two years after discovery or five years after the violation, so periods differ by version✓
• d.The period is fixed at 30 days in every state

The 1956 Act's civil limitation is the earlier of 3 years after the sale or 2 years after discovery; the 2002 Act revised it to the earlier of 2 years after discovery or 5 years after the violation—a tested 1956-versus-2002 distinction (USA 1956 §410(e); USA 2002 §509(j)).

The antifraud provisions of the Uniform Securities Act apply to:

• a.Only registered broker-dealers and agents
• b.Any person, whether or not registered, in connection with the offer, sale, or purchase of any security, exempt or not✓
• c.Only completed sales, never offers
• d.Only non-exempt securities

The antifraud provisions reach any person in connection with the offer, sale, or purchase of any security—exempt or not, registered or not—and apply to offers as well as sales (USA §101/§501).