NASAA Series 66 — All Questions

An individual represents an issuer and sells that issuer's securities only in transactions that are themselves exempt under the Act, receiving no commission. Under the Uniform Securities Act this individual is:

• a.Required to register as a broker-dealer since the person is effecting transactions for compensation
• b.Automatically deemed an investment adviser representative subject to the fiduciary standard of care
• c.Required to register as an agent because any person selling securities must register with the state
• d.Excluded from the definition of 'agent' and therefore not required to register in that capacity✓

USA §401(b) excludes from the 'agent' definition an individual who represents an issuer in effecting transactions in certain exempt securities or in exempt transactions. Because the sales fall within an exempt transaction, the person is not an agent and need not register. This issuer-exclusion is a frequent Series 66 trap.

A broker-dealer has no place of business in a state and effects transactions in that state exclusively with existing customers who are not residents but are only temporarily present there. Under the Uniform Securities Act the broker-dealer:

• a.Is generally excluded from the state's broker-dealer definition and need not register there✓
• b.Must obtain the written approval of the state Administrator for each individual transaction it effects
• c.May transact only if it also registers each of its agents individually in that state first
• d.Must register as a broker-dealer before contacting any customer who is physically in the state

USA §401(c) excludes from a state's broker-dealer definition a firm with no place of business in the state that deals only with existing customers who are not residents and are merely temporarily present. This 'snowbird' relief prevents technical violations when clients travel. It parallels the limited agent relief in §201.

An investment adviser with no place of business in a state gives advice during any 12-month period to fewer than six clients who are residents of that state. Under the Uniform Securities Act this adviser most likely:

• a.Qualifies for the de minimis exemption from state investment-adviser registration in that state✓
• b.Must register in the state because the exemption requires fewer than three clients there
• c.Must register in the state because giving advice to any resident triggers mandatory registration
• d.Is exempt only if every one of its clients in the state is an institutional client such as a bank

Under the Uniform Securities Act an adviser with no place of business in the state is outside the investment-adviser definition there if, in any 12 consecutive months, it has not advised more than five clients in the state (apart from institutional clients). Fewer than six clients fits within that limit, so no state registration is required. The limit is five, not three, so a handful of clients does not trigger registration. Advising a resident does not by itself require registration, because the client count and the place of business decide it. The institutional-client route is a separate alternative in the exclusion, not a condition of the five-client limit.Uniform Securities Act (1956) Section 401(f)(6); (2002) Section 403(b)(2)

Under the Uniform Securities Act, which person is EXCLUDED from the definition of 'investment adviser'?

• a.A pension consultant who, for a separate fee, advises corporate retirement plans on the selection and ongoing monitoring of the investment managers who run the plan's assets
• b.A broker-dealer whose performance of advisory services is solely incidental to its brokerage business and who receives no special compensation for the advice✓
• c.A financial planner who prepares comprehensive written financial plans and charges a distinct, separately stated fee attributable to the securities-advice portion of that engagement
• d.A person who, for compensation, publishes and distributes reports containing specific investment advice that is tailored to the individual circumstances of each paying subscriber

The Act excludes a broker-dealer whose advice is solely incidental to its brokerage business and who receives no special compensation for it. A pension consultant who is paid to advise plan fiduciaries on investments or on selecting managers, a planner who charges a distinct fee for the securities-advice part of a plan, and a person who sells reports tailored to each paying subscriber are all advising others for compensation as a business, which Release IA-1092 treats as investment advice. The publisher exclusion covers only bona fide publications of general, regular circulation, so advice tailored to each subscriber does not qualify.Uniform Securities Act (1956) Section 401(f)(3); SEC Release IA-1092 (1987)

An accountant, lawyer, engineer, or teacher may be excluded from the 'investment adviser' definition. This exclusion is available only when the advice is:

• a.Billed as a separate flat-fee retainer
• b.Provided only to institutional clients such as banks and insurance companies
• c.Limited strictly to municipal and other securities that are exempt under the Act
• d.Solely incidental to the practice of the profession✓

The exclusion for lawyers, accountants, engineers and teachers applies only when the investment advice is solely incidental to the practice of the profession. A professional who bills a separate retainer for investment counsel is in the advisory business and loses the exclusion. Limiting advice to institutional clients or to exempt securities is not the test, because those are separate provisions: a different exclusion covers advisers with no place of business in the state, and advice on exempt securities is addressed elsewhere in the definition.Uniform Securities Act (1956) Section 401(f)(2); Investment Advisers Act of 1940 Section 202(a)(11)(B)

Under Release IA-1092, a person is generally deemed an investment adviser when a three-part test is met. Those three elements are that the person:

• a.Manages more than one hundred million dollars, has custody of client assets, and exercises full discretion over the client accounts
• b.Holds a professional securities license, maintains a fixed place of business, and files Form ADV with the appropriate regulator
• c.Has passed a qualifying examination, carries a securities surety bond, and delivers a written disclosure brochure to every client
• d.Provides advice about securities, does so as a regular part of a business, and receives compensation for it✓

SEC Release IA-1092 (1987) sets the three-prong test: (1) the person gives advice about securities, (2) as part of a business, and (3) for compensation. Meeting all three makes the person an investment adviser regardless of title, licensing, or AUM.

A person's advice covers only U.S. government securities and gives no advice about any other security. Under the Investment Advisers Act of 1940, this person is:

• a.Required to register with the SEC as a federal covered adviser because the Act reaches advice on every type of security
• b.Required to register only with the state where its principal office is located, because the Act has no role for such an adviser
• c.Excluded only if it first files a written exemption notice with the SEC and pays the applicable filing fee on that notice
• d.Excluded from the federal definition of investment adviser because the advice concerns only U.S. government securities✓

The Advisers Act definition of investment adviser excludes any person whose advice, analyses or reports relate to no securities other than direct obligations of the United States or obligations guaranteed as to principal or interest by the United States. The exclusion applies automatically, so no SEC registration, state-only registration or exemption filing is needed. Advice on any other kind of security, including municipal bonds or corporate bonds, would bring the person back within the definition.Investment Advisers Act of 1940 Section 202(a)(11)(E)

The publisher of a bona fide newspaper, magazine, or financial publication of general and regular circulation is excluded from the investment-adviser definition. This publisher's exclusion is LOST if the publication:

• a.Renders advice based on specific situations of individual clients rather than general commentary of regular circulation✓
• b.Is distributed nationally to a very large number of paid subscribers spread across many different states and territories
• c.Occasionally quotes current market prices and reports on general economic and business conditions of broad public interest
• d.Contains paid advertising sold to brokerage firms and mutual-fund sponsors positioned alongside its regular articles

Section 202(a)(11)(D) of the Investment Advisers Act excludes the publisher of a bona fide newspaper, news magazine or business or financial publication of general and regular circulation, and Lowe v. SEC (1985) read that exclusion to cover impersonal commentary. The exclusion is lost when the publication gives advice tailored to the specific situations of individual clients. A large national circulation, routine reporting of prices and economic news, and paid advertising are all normal for a bona fide publication.Investment Advisers Act of 1940 Sec. 202(a)(11)(D)

Under the Uniform Securities Act, when a broker-dealer registers in a state, its agents:

• a.Are automatically registered along with the firm itself and therefore need file nothing whatsoever of their own with the state
• b.Are permitted to solicit only institutional clients until each of them separately passes an additional qualification examination
• c.May transact securities business the very moment the firm itself becomes effective in the state, with each agent's own individual registration filings due to be submitted at some later date
• d.Must each separately register, and an agent's registration is generally not effective during any period the agent is not associated with a registered broker-dealer✓

USA §201 requires each agent to register separately, and an agent's registration is effective only while the agent is associated with a registered broker-dealer or issuer. When the association ends, the agent's registration is no longer effective. The firm's registration does not carry the agents automatically.

Under the Uniform Securities Act, an application for registration as a broker-dealer, agent, investment adviser, or IAR generally becomes effective:

• a.Only after the Administrator affirmatively signs and personally mails to the applicant a certificate approving the applicant's character and financial responsibility
• b.Immediately upon the applicant's electronic submission of the required forms and fees, without any waiting period at all
• c.On the first business day of the calendar quarter that follows the quarter in which the application was originally filed
• d.At noon on the 30th day after a complete application is filed, absent a denial or a proceeding, or sooner if the Administrator so orders✓

USA §202 provides that a registration becomes effective at noon on the 30th day after a complete application is filed, unless a denial order or proceeding is pending, and the Administrator may set an earlier effective date. Registration is not instantaneous and does not require an affirmative merit approval.

The Uniform Securities Act permits the Administrator to require which of the following of a registered broker-dealer or investment adviser?

• a.A surety bond of at least $100,000 from every registered broker-dealer and adviser, regardless of its net capital
• b.A cash deposit with the Administrator equal to ten percent of the firm's annual gross commissions, held until the firm closes
• c.Minimum net capital or net worth, surety bonds where applicable, and the maintenance of specified books and records✓
• d.Prior written approval from the Administrator before the firm may open a branch office or hire any new agent in the state

The Administrator may by rule require registrants to meet minimum capital requirements, to post a surety bond where applicable, and to keep specified books and records. The bond is capped at $10,000 and is not required where net capital exceeds $25,000, so a flat $100,000 bond from every registrant is not authorized. The Act does not call for a cash deposit measured against gross commissions, and it does not make registrants obtain advance approval for each branch office or new hire.Uniform Securities Act (1956) Sections 202(d)-(e), 203(a)

Under NASAA model rules, a state-registered investment adviser that has CUSTODY of client funds or securities generally must maintain a minimum net worth of:

• a.Two hundred fifty thousand dollars, an amount matching the SEC's asset threshold for federal covered advisers with custody
• b.Ten thousand dollars, the very same figure required of an adviser that merely exercises discretion but never holds custody
• c.Nothing at all, because a surety bond may always be freely substituted for any and every net-worth requirement under the rules
• d.Thirty-five thousand dollars, and must promptly notify the Administrator if net worth falls below the minimum✓

NASAA's model minimum-financial-requirements rule sets $35,000 net worth for an adviser with custody and $10,000 for one with discretion but no custody. An adviser whose net worth drops below the minimum must notify the Administrator, typically by the next business day, and file a financial report.

A state-registered investment adviser that has discretionary authority over client accounts but does NOT have custody generally must maintain a minimum net worth of, or post a bond in the amount of:

• a.Fifty thousand dollars held in cash within a segregated account maintained at a qualified custodian bank at all times
• b.One hundred thousand dollars, an amount that escalates upward in step with the total assets the adviser has under management
• c.Thirty-five thousand dollars, the identical amount that is required whenever the adviser holds actual custody of client assets
• d.Ten thousand dollars, and if net worth is deficient the adviser must post a bond and notify the Administrator✓

NASAA model rules require $10,000 net worth for a state adviser with discretion but no custody. If net worth is or becomes deficient, the adviser must post a surety bond and notify the Administrator. The $35,000 figure applies to custody, not mere discretion.

Under the Uniform Securities Act, the Administrator may by rule or order require a minimum net capital for broker-dealers but may NOT:

• a.Impose a financial-responsibility requirement higher than, or different from, that imposed on a broker-dealer by the Securities Exchange Act of 1934✓
• b.Suspend a broker-dealer whose net capital has fallen below the prescribed minimum, after providing appropriate advance written notice and a full opportunity for a hearing on the record
• c.Prescribe recordkeeping requirements so that examiners are able to verify the firm's ongoing net-capital position at any time
• d.Require broker-dealers to file periodic financial reports demonstrating their continuing compliance with the applicable standard

Under NSMIA and USA §202/§203, a state may not impose broker-dealer capital, custody, margin, or recordkeeping requirements that differ from or exceed federal (1934 Act) requirements. The state may still require reports, examine, and discipline for deficiencies within the federal ceiling.

An investment adviser wants to charge a fee based on the average value of a client's account measured over a defined period. Under the Uniform Securities Act and NASAA rules this fee arrangement is:

• a.Permitted only if the client first signs a written form purporting to waive the substantive protections of the Advisers Act
• b.Permitted only for clients who are banks, insurance companies, registered investment companies, or other institutional investors
• c.Permitted, because a fee tied to a percentage of assets under management is not a performance-based fee✓
• d.Prohibited outright, because any advisory fee measured against the value of client assets is deemed a performance-based fee

A fee based on a percentage of assets under management is a standard, permitted advisory fee and is not a performance fee. IAA §205 and NASAA rules restrict only fees based on a SHARE of capital gains or appreciation, which require a qualified client. Asset-based and hourly/flat fees are broadly allowed.

When a state-registered investment adviser wishes to withdraw its registration, the withdrawal under the Uniform Securities Act generally becomes effective:

• a.Only after every last advisory client of the firm has first been formally transferred to another registered investment adviser
• b.On the very same day the Administrator receives the withdrawal filing, with no continuing jurisdiction retained thereafter
• c.Immediately upon the adviser simply ceasing to accept any new advisory clients within the borders of that particular state
• d.30 days after the filing of the withdrawal, unless a revocation or other proceeding is then pending✓

USA §204 provides that a withdrawal of registration generally becomes effective 30 days after filing (or such shorter period as the Administrator allows) absent a pending proceeding. Critically, the Administrator retains jurisdiction for one year to institute a revocation or suspension after withdrawal.

Under the Uniform Securities Act, after a registrant files to withdraw its registration, the Administrator retains jurisdiction to begin a revocation or suspension proceeding for a period of:

• a.Ninety days, matching the criminal referral window under the Act
• b.Six months, corresponding to the record-retention period for terminated agents
• c.One year after the withdrawal becomes effective✓
• d.Thirty days from the effective date of the withdrawal and no longer

USA §204 gives the Administrator continuing jurisdiction for one year following the effective date of a withdrawal to revoke or suspend the former registration. This prevents a registrant from escaping discipline by withdrawing after misconduct.

A registered agent leaves broker-dealer X and joins broker-dealer Y. Under the Uniform Securities Act, notice of the change generally must be given to the Administrator by:

• a.Both the agent AND both broker-dealers — the old firm, the new firm, and the agent✓
• b.No one, because registration transfers automatically between firms
• c.Only the two broker-dealers involved, since agents file nothing of their own
• d.Only the agent personally, who alone bears responsibility for keeping the registration current

USA §201 requires that when an agent begins or terminates a connection with a broker-dealer, the agent AND both the former and the new broker-dealer must promptly notify the Administrator. The obligation falls on all three parties, not just one.

Under the Uniform Securities Act, the Administrator may require an applicant for registration as an agent or investment adviser representative to:

• a.Post a surety bond of at least $100,000 before the Administrator will act on the application
• b.Hold a professional designation such as the CFP or CFA charter before the Administrator reviews the file
• c.Successfully pass a written or oral examination as a condition of registration✓
• d.Register as an individual with the SEC before applying to the state

The Administrator may require an examination, written or oral or both, as a condition of registering an agent or investment adviser representative. The bond authority is limited to $10,000 and is not required above $25,000 of net capital, so a $100,000 bond is not available. A professional designation may allow an exam waiver but is not a prerequisite. Agents and representatives register with the state, not as individuals with the SEC.Uniform Securities Act (1956) Section 204(b)(6); (2002) Section 412(e)

An investment adviser registered in a state and an agent are both required to keep their registrations current. Under the Uniform Securities Act, registrations of persons generally:

• a.Remain valid permanently once granted, with no renewal or fee required
• b.Expire on December 31 and must be renewed annually upon payment of the required fee✓
• c.Transfer automatically to a successor firm without any new filing
• d.Expire at the close of each calendar quarter and must accordingly be renewed on a quarterly basis

USA §202 provides that registrations of broker-dealers, agents, investment advisers, and IARs expire December 31 and must be renewed annually with the appropriate fee. Registration is not perpetual and does not transfer automatically.

Under the Uniform Securities Act, when a broker-dealer that is a sole proprietor dies or is otherwise incapacitated, the firm's registration:

• a.May be continued by a successor for the remainder of the registration period under the Act's succession provisions✓
• b.Is immediately and permanently canceled the instant the proprietor dies, with no continuation or succession of any kind allowed
• c.Converts by operation of law into a federal covered investment adviser registration administered directly by the SEC
• d.Automatically transfers to the deceased proprietor's estate, which may then operate the firm in perpetuity without any refiling

USA §202 succession provisions allow a successor firm to file and continue the business for the unexpired portion of the registration period, easing transitions on death, dissolution, or reorganization. The registration is not simply extinguished, nor does it perpetually pass to an estate.

A registered investment adviser reorganizes and forms a successor entity. Under the Uniform Securities Act, the successor firm's registration:

• a.Requires an entirely new registration fee to be paid immediately upon the reorganization formally taking effect
• b.May become effective for the unexpired portion of the current year, with any fee due at the next renewal✓
• c.Is barred entirely, because advisory registrations may under no circumstances be assigned to or succeeded to by another entity
• d.Cannot be granted at all until every single existing advisory client has re-executed a brand-new advisory contract

USA §202 permits a successor entity's registration to become effective for the unexpired term of the predecessor's registration; the filing fee for the successor is generally not due until the next renewal. This provides continuity through reorganizations without duplicate fees.

Under the Uniform Securities Act, registration of securities by QUALIFICATION differs from coordination and filing in that qualification:

• a.Requires simultaneous registration under the Securities Act of 1933 with the SEC, exactly as the coordination method does
• b.Becomes effective automatically twenty days after the federal registration statement is filed with the Commission
• c.Is the most demanding method, available to any issuer, with effectiveness set by the Administrator and the most extensive disclosure filed at the state level✓
• d.Is available only to those issuers that have already been publicly traded and filing continuous reports with the SEC for a period of at least five full years before the state filing is made

USA §304 registration by qualification is the most burdensome method, used chiefly for intrastate offerings with no federal registration. The issuer files the most extensive disclosure, and effectiveness occurs when the Administrator so orders. Coordination, by contrast, is tied to a concurrent 1933 Act filing.

Registration of securities by COORDINATION under the Uniform Securities Act generally becomes effective:

• a.At the same time the federal registration statement becomes effective, provided state conditions are met✓
• b.Exactly ninety days after the state filing is made, entirely regardless of the status of the federal registration statement
• c.At the precise moment the state application is first stamped as received by the Administrator's office staff
• d.Only after the Administrator has conducted a full merit review and approved the fairness of the offering price to investors

USA §303 registration by coordination becomes effective simultaneously with the federal registration statement's effectiveness under the Securities Act of 1933, so long as the state materials have been on file for the required period and other conditions are satisfied. State Administrators never conduct a merit-approval of price.

Under the National Securities Markets Improvement Act (NSMIA), securities that are 'federal covered' (such as those listed on a national exchange or issued by a registered investment company):

• a.Are subject to a full state merit review of their fairness before they may lawfully be sold to any resident of the state
• b.Are exempt from state registration, though states may still require a notice filing and retain antifraud authority✓
• c.May be sold only to institutional investors within any given state, and never to any individual retail investor there
• d.Must nonetheless still register at the state level using registration by qualification in each and every state of sale

NSMIA (1996) preempted state registration of federal covered securities, which include exchange-listed securities, securities senior to them, and investment-company shares. States may require a notice filing and fee and keep antifraud jurisdiction under USA §101, but they cannot impose registration or merit review.

Which of the following is an EXEMPT SECURITY under the Uniform Securities Act?

• a.An interest in a private oil-and-gas limited partnership that is marketed to investors through a broad general solicitation
• b.A variable annuity contract whose underlying sub-account values fluctuate directly with the performance of the securities markets
• c.A promissory note issued by a newly formed technology start-up company and sold directly to individual retail investors
• d.A commercial paper note maturing in nine months or less, rated in one of the top categories, issued for current operations✓

USA §402(a) exempts commercial paper with a maturity of nine months or less that is rated in a top category and issued for current transactions. Start-up notes, public partnership interests, and variable annuities are securities that are not automatically exempt. The exemption turns on the security's inherent character.

Under the Uniform Securities Act, which of the following is classified as an EXEMPT SECURITY rather than an exempt transaction?

• a.A private placement that is offered to no more than ten non-institutional buyers within the state over a twelve-month period
• b.A one-time isolated sale made by an executor in the course of settling the estate of a recently deceased individual investor
• c.A security issued or guaranteed by a foreign national government with which the United States maintains diplomatic relations✓
• d.An unsolicited purchase order that is received from an existing brokerage customer without any solicitation by the agent

USA §402(a) exempts securities issued or guaranteed by a foreign government with which the U.S. has diplomatic relations. The other choices describe exempt TRANSACTIONS under §402(b), which depend on how or to whom a security is sold rather than on the issuer's character.

A security is sold in a private placement under the Uniform Securities Act. To qualify as an exempt transaction, the offer generally may be directed to no more than:

• a.Ten persons in the state (other than institutional buyers) during any 12 consecutive months, with limits on commissions and resale intent✓
• b.Any number of buyers at all, so long as not a single one of them is a resident of the Administrator's own state at the time
• c.One hundred institutional and retail buyers combined, provided that each of them signs a formal written subscription agreement before the sale is completed
• d.Thirty-five accredited investors located anywhere nationwide, with unlimited general advertising expressly permitted throughout

USA §402(b) exempts a private-offering (limited-offering) transaction directed to not more than ten non-institutional persons in the state in 12 months, where the seller reasonably believes buyers are purchasing for investment and no commissions are paid to non-registered persons for soliciting retail buyers. Institutional buyers are not counted.

Under the Uniform Securities Act, an 'isolated non-issuer transaction' is an exempt transaction. The word 'non-issuer' means the transaction is:

• a.Conducted only between two registered broker-dealers acting as principals
• b.Not for the direct or indirect benefit of the issuer of the security being traded✓
• c.Effected only in securities issued by a governmental unit
• d.Limited strictly to securities that have never been registered anywhere in any jurisdiction

USA §401 defines a non-issuer transaction as one in which the issuer does not directly or indirectly benefit from the proceeds. An isolated non-issuer transaction (a one-off secondary trade) is exempt under §402(b) because it is not part of a regular securities business.

Which of the following would most likely qualify as an EXEMPT TRANSACTION under the Uniform Securities Act?

• a.A solicited sale of a non-exempt security made to an individual retail investor at that investor's private residence
• b.A door-to-door offering of speculative promissory notes made to first-time individual investors located in the state
• c.A transaction with a bank, insurance company, investment company, or other institutional investor✓
• d.A general newspaper advertisement inviting the investing public at large to purchase a new speculative mining stock

USA §402(b) exempts transactions with institutional investors such as banks, savings institutions, insurance companies, investment companies, and registered broker-dealers. These sophisticated buyers do not need the Act's registration protections. Solicited retail sales and public solicitations are not exempt transactions.

Under the Uniform Securities Act, when a security qualifies as a FEDERAL COVERED security, the state Administrator's remaining authority is generally limited to:

• a.Requiring a notice filing, collecting fees, and enforcing the antifraud provisions of the Act✓
• b.Requiring registration by coordination so the state can review the offering alongside the federal registration statement
• c.Conducting a merit review of the offering, but only when the security is not listed on a national exchange or market
• d.Requiring a state offering circular to be delivered to every resident purchaser before any sale is completed

For a federal covered security the state may require a notice filing and a fee, and it keeps its antifraud authority. It may not require state registration, whether by coordination or qualification, and it may not substitute its own merit review or disclosure document for the federal regime, even for securities that are not exchange-listed.Securities Act of 1933 Section 18(c) (15 U.S.C. 77r(c))

A security is initially sold in an exempt transaction. If a claim of exemption is challenged, under the Uniform Securities Act the burden of proving that the exemption applies rests with:

• a.The person claiming the exemption, such as the issuer, broker-dealer, or agent asserting it✓
• b.The state Administrator, who bears the burden of disproving the claimed exemption by clear and convincing evidence
• c.The federal courts, which alone decide every question concerning state securities exemptions entirely de novo
• d.The purchaser of the security, who is conclusively presumed to know all of the applicable statutory exemptions

USA §402(d) places the burden of proving an exemption (or an exception from a definition) on the person who claims it. If that person cannot establish the exemption, the transaction is treated as non-exempt and the registration requirements apply.

Under the Uniform Securities Act, a transaction by an executor, administrator, guardian, conservator, sheriff, or trustee in bankruptcy is:

• a.Subject to full securities registration, because a fiduciary acting in such circumstances is legally treated as an issuer
• b.An exempt transaction because it is effected by a fiduciary acting under legal authority✓
• c.Permitted only if the underlying security being sold is itself also independently an exempt security under the Act
• d.Prohibited entirely unless the fiduciary first personally registers as an agent within the state before acting

USA §402(b) exempts transactions executed by fiduciaries such as executors, administrators, guardians, conservators, sheriffs, marshals, receivers, and trustees in bankruptcy. These court-supervised or legally authorized sales are exempt regardless of whether the security itself is exempt.

A securities issued by a company subject to full and continuous SEC reporting and listed on the New York Stock Exchange is best characterized under the Uniform Securities Act as:

• a.A non-exempt security that must be registered by qualification in each and every state in which it is sold to residents
• b.A federal covered security whose state registration is preempted, though a notice filing may apply✓
• c.An exempt transaction that must nevertheless be reported to the state Administrator on a recurring quarterly basis
• d.A private security that is lawfully available only to accredited investors and to institutional investors in the state

Under NSMIA and USA §402, exchange-listed securities (and those senior or equal to them) are federal covered securities, formerly called 'blue-chip exempt.' State registration is preempted; the state may impose only a notice filing and keep antifraud authority.

Under the Uniform Securities Act, in the course of an investigation the Administrator has the power to:

• a.Impose a criminal fine or prison term on the respondent once the investigation shows a willful violation
• b.Seize a firm's client accounts and liquidate the assets on the Administrator's own authority, with no court order needed
• c.Administer oaths, subpoena witnesses and documents, and compel testimony, including in matters that cross state lines✓
• d.Order the SEC to revoke a federal covered adviser's registration on a nationwide basis and open a parallel inquiry

In an investigation the Administrator may administer oaths, subpoena witnesses and documents, and compel testimony and production, within or outside the state. Criminal fines and imprisonment come from a court after prosecution, not from the Administrator directly. Seizing and liquidating client accounts requires judicial involvement, and a state Administrator has no power to direct the SEC.Uniform Securities Act (1956) Section 407

Under the Uniform Securities Act, the criminal penalties for a willful violation generally include a maximum of:

• a.Three years in prison and a fine of five thousand dollars per willful violation✓
• b.Ten years in prison and unlimited fines, mirroring federal insider-trading statutes
• c.Only monetary penalties, since the Act provides no possibility of imprisonment
• d.One year in prison and a fine of one thousand dollars for any violation

USA §409 sets criminal penalties for a willful violation at up to 3 years imprisonment and a fine of up to $5,000 (the classic '3 and 5' at the model level). A person cannot be imprisoned for violating a rule or order of which they had no knowledge.

Under the Uniform Securities Act, a person may NOT be convicted and imprisoned under the criminal provisions if the person:

• a.Had already paid a civil penalty for the same underlying conduct
• b.Merely made a negligent misstatement rather than an intentional one during a sale
• c.Violated the Act while acting on the advice of unlicensed counsel
• d.Proves they had no knowledge of the rule or order that was violated✓

USA §409 provides that no person may be imprisoned for the violation of a rule or order if the person proves they had no knowledge of it. The state must also show a WILLFUL violation. Negligence and reliance on counsel are not the codified defenses; lack of knowledge of the rule/order is.

Under the Uniform Securities Act, criminal prosecutions for violations must generally be brought within:

• a.Three years without regard to when the violation was discovered
• b.Five years after the alleged violation, matching the record-retention period✓
• c.Two years after the buyer discovered or should have discovered the violation
• d.Ten years, the same period used for securities-related felony disqualification

USA §409 provides that no indictment or information may be returned more than five years after the alleged violation. This criminal statute of limitations is distinct from the civil-liability limitation (roughly two years after discovery or three years after the sale).

Under the Uniform Securities Act, the Administrator may seek an INJUNCTION against a person engaged in an act or practice that violates the Act by:

• a.Applying to the appropriate court, which may grant a temporary or permanent injunction and appoint a receiver✓
• b.Requiring the respondent to first consent to entry of the injunction before the Administrator may even seek it in court
• c.Issuing the injunction personally through an administrative order without any application to or involvement of a court
• d.Referring the matter exclusively to the SEC, which alone may bring the federal court action seeking the injunction

USA §408 authorizes the Administrator to APPLY TO A COURT for an injunction; only a court can issue one, and the court may also appoint a receiver over the defendant's assets. The Administrator's own orders (cease-and-desist under §204) are separate administrative remedies.

Under the Uniform Securities Act, the state Administrator's rulemaking and orders:

• a.May be adopted by the Administrator, but no provision of the Act imposes liability for an act done in good-faith conformity with a rule or order later amended or rescinded✓
• b.Require the prior written consent of the entire state legislature before any rule or order may lawfully take effect
• c.Automatically preempt and override any conflicting rule adopted by the SEC on the very same regulatory subject matter
• d.Are valid only when they are word-for-word identical to the corresponding rules that have been separately adopted by every other state securities Administrator across all of the states

USA §412 and related provisions let the Administrator make, amend, and rescind rules and orders necessary to carry out the Act; and no liability attaches for acts done in good-faith conformity with a rule or order, even if it is later changed or found invalid. State rules do not preempt the SEC.

The Uniform Securities Act gives a state Administrator jurisdiction over an offer to sell or to buy when the offer:

• a.Concerns a security already registered with the SEC, wherever the offer is made
• b.Appears in an out-of-state newspaper that circulates mostly outside the state
• c.Is broadcast by an out-of-state radio or television program
• d.Originates in the state, is directed into the state, or is accepted in the state✓

The Act reaches an offer that originates from the state, one that is directed into the state and received there, and an offer or acceptance that takes place in the state. SEC registration does not decide where an offer is made, and a bona fide out-of-state newspaper with mainly out-of-state circulation or an out-of-state broadcast is specifically not treated as an offer made in the state.Uniform Securities Act (1956) Section 414(c)-(d)

Under the Uniform Securities Act, when a radio or television broadcast or a bona fide newspaper offer originates outside the state, the Administrator generally does NOT have jurisdiction if:

• a.The security offered is exempt from registration under the Act, so the Administrator has no jurisdiction over any offer of it, whatever medium carries the offer
• b.The newspaper is published in the state but one-third or more of its circulation is outside the state
• c.The publication is not published in the state, or more than two-thirds of its circulation is outside the state (for broadcasts, the broadcast originates outside the state)✓
• d.The offeror has already registered the same security in the state where the newspaper is published

An offer is not treated as made in the state by a bona fide newspaper that is not published in the state, or that is published in the state but has more than two-thirds of its circulation outside it, or by a broadcast that originates outside the state. One-third of circulation outside the state is not enough. Exempt securities are still subject to the antifraud provisions, so the exemption does not remove jurisdiction, and registration of the security in another state is not part of the test.Uniform Securities Act (1956) Section 414(e)

Under the civil-liability provisions of the Uniform Securities Act, a buyer who was sold a security in violation of the Act may generally recover:

• a.The consideration paid plus interest, but only if the buyer proves the seller intended to deceive
• b.The consideration paid, less income received, plus interest and costs but not attorneys' fees, which each side must bear for itself
• c.Only the difference between the price paid and the security's market value on the day the suit is filed, with no interest, costs or attorneys' fees added
• d.The consideration paid plus interest at the statutory rate, and reasonable attorneys' fees and costs, less any income already received on the security✓

A buyer sold a security in violation of the Act may recover the consideration paid, plus interest at the statutory rate (six percent a year in the 1956 Act), costs and reasonable attorneys' fees, less any income received on the security. The seller carries the burden of proving it did not know, so the buyer does not have to prove intent to deceive. Attorneys' fees are included in the recovery rather than borne by each side, and the measure is the consideration paid, not a market-value difference at the time of suit.Uniform Securities Act (1956) Section 410(a)

Under the Uniform Securities Act, a person who offers to rescind a sale made in violation of the Act (a rescission offer) can cut off the buyer's right to sue if the buyer:

• a.Merely acknowledges the rescission offer verbally during a recorded telephone conversation within twenty-four hours
• b.Happens to be an institutional investor rather than an individual retail customer of the offering broker-dealer
• c.Fails to accept the written rescission offer within the specified period (commonly 30 days) after receiving it✓
• d.Has already filed a formal written complaint with the state Administrator concerning the very same transaction

USA §410 lets a seller make a written rescission offer (repaying price plus interest, less income). If the buyer does not accept within the stated period (often 30 days) after receipt, the buyer loses the right to bring the civil action. The offer must include the required financial terms and disclosures.

Under the Uniform Securities Act, liability for a violation may extend beyond the individual who made the sale to include:

• a.Only the seller itself, because the Act makes no one else answerable for the sale
• b.Every person who directly or indirectly controls the seller, and certain partners, officers, and employees who materially aided the sale, unless they lacked knowledge and could not reasonably have known✓
• c.Every employee of the seller's firm, whether or not the employee took any part in the sale
• d.Control persons and officers, but only after the buyer proves they actually knew of the violation

Liability extends to every person who directly or indirectly controls the seller, and to partners, officers, directors and employees who materially aid the sale, unless they prove they did not know and could not reasonably have known of the facts. Liability is not confined to the seller. It does not reach employees who took no part in the sale, and the burden is on the defendant to prove lack of knowledge, not on the buyer to prove knowledge.Uniform Securities Act (1956) Section 410(b)

Under the Uniform Securities Act, the Administrator may deny, suspend, or revoke a registration if it finds the action is in the public interest AND the applicant or registrant:

• a.Has recommended securities to clients that subsequently declined in market value through no fault of the registrant or the employing broker-dealer firm
• b.Has changed the particular broker-dealer with which the agent is associated at some point during the calendar year
• c.Has earned aggregate commissions during the year that happen to exceed a broad industry-average benchmark figure
• d.Has willfully violated the Act, been convicted of a securities-related felony within 10 years, or been enjoined from the securities business✓

USA §204 lists statutory causes for disciplinary action, including willful violations of the Act, a securities-related felony (or certain other crimes) within 10 years, injunctions, and insolvency. Every action requires a finding that it is in the public interest. Market losses and lawful commissions are not causes.

Under the Uniform Securities Act, before the Administrator enters a final order to revoke a registration (as opposed to a summary postponement or suspension), the registrant is generally entitled to:

• a.Appropriate prior notice, an opportunity for a hearing, and written findings of fact and conclusions of law✓
• b.An automatic trial by jury conducted before the state's highest appellate court prior to any revocation taking effect
• c.Immediate reinstatement of the registration pending the ultimate outcome of any administrative or judicial appeal
• d.A guaranteed monetary settlement paid by the Administrator to the registrant in lieu of holding any hearing at all

USA §204 requires the Administrator to give appropriate prior notice and opportunity for a hearing and to issue written findings before a final revocation order. The Administrator may summarily postpone or suspend pending final determination, but the registrant still receives notice and a hearing.

Under the Uniform Securities Act, a party aggrieved by a final order of the Administrator generally may:

• a.Obtain review directly from the U.S. Supreme Court within ten days
• b.Obtain judicial review by filing a petition in the appropriate court within 60 days of the order✓
• c.Demand a new evidentiary hearing before a different state's Administrator
• d.Only comply with the order, because a final order of the Administrator is immune from judicial review

USA §411 allows a person aggrieved by a final order to obtain judicial review by filing a written petition in the appropriate court, generally within 60 days of the order. Filing the petition does not by itself stay the order unless the court so directs.

Under the Uniform Securities Act, the Administrator may issue a summary order (for example, summarily suspending a registration or a securities registration statement) when:

• a.The Administrator personally disagrees with the pricing of an offering and, without any finding of harm, would simply prefer that the shares be sold to retail investors at a lower price in that state
• b.A client has made an unsubstantiated oral complaint about performance that the Administrator has not yet investigated or corroborated in any way
• c.A registrant's commissions in the prior calendar year were unusually high compared with the statewide industry average for other similar firms
• d.The Administrator finds prompt action is required in the public interest, subject to promptly notifying affected parties and granting a hearing if requested✓

USA §204/§306 allow the Administrator to act summarily (e.g., postpone or suspend) when the public interest requires prompt action, provided the Administrator promptly notifies the affected persons and holds a hearing if one is requested within the statutory period. Pricing disagreements and lawful commissions are not grounds.

The antifraud provisions of the Uniform Securities Act (Section 101 for sales and Section 102 for advisory activity) apply to:

• a.Only registered agents themselves, and never to issuers, broker-dealers, or investment advisers, no matter how the underlying transaction happens to be conducted
• b.Only transactions involving federal covered securities that were registered under NSMIA and later sold across two or more separate states
• c.Only those securities that are actually required to be registered by qualification or coordination within the particular state
• d.Any offer, sale, or advice concerning a security, including transactions and securities that are otherwise exempt from registration✓

USA §101 and §102 antifraud provisions reach ALL securities activity, including exempt securities and exempt transactions. An exemption from registration is never an exemption from the antifraud rules, and both agents and advisers are covered.