CSLB General Building (B) — All Questions

In investigating a suspected violation, the Administrator may:

• a.Act only within the borders of his or her own state
• b.Compel testimony only after obtaining a criminal indictment
• c.Require testimony but never demand documents
• d.Conduct investigations inside or outside the state, administer oaths, subpoena witnesses and records, and require written statements under oath✓

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
• 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 automatically revokes the recipient's registration
• d.It may be issued only against registered persons

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 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✓
• b.The registrant has been convicted of a felony
• c.The registrant has caused a customer to lose money
• d.A majority of the registrant's customers have complained

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.Order the registrant to pay restitution without any hearing
• c.Have the registrant arrested pending the outcome
• d.Summarily postpone or suspend the registration pending final determination, provided prompt written notice is given and a hearing is promptly scheduled if requested✓

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.A fine, imprisonment, or both, with prosecution generally required to begin within five years of the alleged violation✓
• b.Life imprisonment with no fine
• c.A fine imposed directly by the Administrator, with no court involvement
• 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.Triple the amount invested as punitive damages
• b.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✓
• c.Only the difference between the purchase price and the current market price
• 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 purchaser may accept at any time within three years
• b.The offer must be accompanied by a cash payment before the buyer responds
• 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.Ignore the order until the Administrator brings an enforcement action
• 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.Demand a jury trial before the Administrator

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 both the buyer and the seller reside in the state
• c.Only when the security involved is registered in the state
• d.Only when the transaction was profitable for the seller

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 require records but may never inspect them outside the state
• c.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✓
• d.May inspect records only during an annual audit announced in advance

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.The Administrator may adopt rules but never prescribe forms
• b.Rules take effect only after approval by the SEC
• 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.Deny an application for registration after notice and an opportunity for hearing
• b.Issue a cease and desist order
• c.Issue an injunction or sentence a violator to prison✓
• d.Subpoena records located in another state

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 only at the firm's out-of-state headquarters
• b.Served only if the firm still has clients in the state
• c.Ignored unless the firm agrees to appear
• d.Served on the Administrator with the same effect as personal service on the firm, with notice forwarded to the firm✓

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.Refer the evidence to the attorney general or the appropriate prosecuting attorney, who may institute criminal proceedings✓
• b.Impose a prison sentence directly
• c.Convene a grand jury without involving prosecutors
• d.Do nothing, because criminal violations are exclusively federal

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 deny the application solely because of the applicant's lack of experience
• b.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✓
• c.Must deny the application because experience is a statutory prerequisite
• d.May grant the registration only on the condition that the applicant waive the right to a hearing

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