Regulation of Remedies and Administrative Provisions — Series 63 practice questions

Under the Uniform Securities Act, a state Administrator may issue a cease-and-desist order in which of the following ways?

1. Only after conducting a full evidentiary court hearing on the underlying merits of the alleged violation first
2. Only against unregistered persons acting without a license; registered persons are entirely exempt from these
3. Only with prior written authorization from the SEC on the specific matter subject to the cease-and-desist order
4. Summarily, with the affected person entitled to a prompt post-order hearing to satisfy due process guarantees

Answer: D — Summarily, with the affected person entitled to a prompt post-order hearing to satisfy due process guarantees

A) Pre-hearing court proceedings aren't required. B) Applies to registered persons too. C) No SEC authorization required. D) Correct — cease-and-desist orders can be issued summarily; post-order hearing rights preserve due process.

Which action may a state Administrator take against a registrant for good cause shown?

1. Issue only a cease-and-desist order pending a subsequent formal evidentiary hearing
2. Deny, suspend, or revoke the registrant's currently active registration for cause
3. Impose only civil monetary penalties or refer matters for criminal prosecution work
4. Any of the above three, subject to notice and an opportunity for a formal hearing

Answer: D — Any of the above three, subject to notice and an opportunity for a formal hearing

A) Cease-and-desist alone is not the outer limit of authority. B) Denial/suspension/revocation alone is not the outer limit. C) Civil/criminal referral alone is not the outer limit. D) Correct — Administrators may take all three types of action.

In an administrative proceeding under the USA, the state Administrator may take which action?

1. Only recommend action to the SEC for federal-level determination of any registrant discipline
2. Only act with prior state legislative approval for each individual disciplinary case brought
3. Only impose voluntary civil sanctions requiring recipient consent before becoming operative
4. Deny, suspend, or revoke a registrant's registration after providing notice and a fair hearing

Answer: D — Deny, suspend, or revoke a registrant's registration after providing notice and a fair hearing

A) The Administrator acts on its own authority. D) Correct — denial, suspension, or revocation after notice and hearing. C) Sanctions are enforceable, not voluntary. B) No legislative approval required.

A customer exercising the right of rescission under USA Section 410 would MOST likely receive:

1. Punitive damages calculated as a multiple of the original investment
2. The purchase price plus interest, less income received, upon tendering the security back
3. A replacement security of equal value chosen by the Administrator
4. Reimbursement limited strictly to the agent's commission on the trade

Answer: B — The purchase price plus interest, less income received, upon tendering the security back

B) Correct — rescission unwinds the transaction: price plus interest, less income received, against tender of the security. A) Punitive damages aren't the rescission remedy. C) A replacement security isn't the remedy. D) The remedy isn't limited to just the commission amount.

A broker-dealer's supervisory failure — for example, allowing an unregistered employee to accept customer orders — can:

1. Result in no consequence if the unregistered employee later registers with the state Administrator promptly
2. Result only in a confidential letter of reprimand from the state Administrator delivered to the firm's HQ
3. Result in denial, suspension, or revocation of the broker-dealer's state registration status for cause
4. Result only in a civil monetary fine and never in a consequence to the firm's registration standing at all

Answer: C — Result in denial, suspension, or revocation of the broker-dealer's state registration status for cause

A) Later registration doesn't cure the past violation. B) Discipline can be far more severe. C) Correct — supervisory failures are independent grounds for discipline under USA Section 204. D) Registration consequences are available.

A customer discovers facts suggesting fraud 18 months after a securities sale that closed 4 years ago. Under USA Section 410's statute of limitations, a civil claim is MOST likely:

1. Timely, because discovery occurred less than 2 years before filing
2. Time-barred, because more than 3 years have passed since the sale
3. Timely indefinitely, since discovery restarts the clock with no outer limit
4. Governed solely by the federal 5-year statute of repose instead

Answer: B — Time-barred, because more than 3 years have passed since the sale

B) Correct — the earlier of 2 years from discovery or 3 years from sale governs; 4 years since sale exceeds the 3-year cap. A) Discovery timing alone doesn't save the claim once the 3-year sale cap has run. C) There is an outer limit (3 years from sale). D) State claims are governed by the state SoL, not the federal statute.

A violation of the NASAA unethical business practices model rule can result in which type of consequence?

1. Administrative discipline only, with no possible civil or criminal exposure
2. Civil consequences only, since ethics rules are not independently enforceable
3. No consequence unless a criminal court first convicts the registrant
4. Administrative, civil, and potentially criminal consequences depending on the conduct

Answer: D — Administrative, civil, and potentially criminal consequences depending on the conduct

D) Correct — depending on severity, conduct violating ethical practice rules can trigger administrative, civil, and criminal exposure. A) Exposure isn't limited to administrative action only. C) A criminal conviction isn't a prerequisite for administrative or civil consequences. B) Consequences aren't limited to civil remedies alone.

Under USA Section 410, the statute of limitations for a private civil action is best described as which of these?

1. The earlier of two years after discovery of the violation or three years after the underlying sale
2. Ten years after the sale of the security regardless of when the fraud was actually discovered
3. Twenty years after the underlying sale of the securities occurred without any discovery extension
4. No limitation period at all under state securities law provisions for civil actions after a sale

Answer: A — The earlier of two years after discovery of the violation or three years after the underlying sale

A) Correct — the 2/3 rule (whichever runs first) is the classic USA SoL. B) Not 10 years. C) Not 20 years. D) There is a limitation.

An Administrator's cease-and-desist order is BEST described as a tool to:

1. Impose criminal imprisonment directly without any court involvement
2. Halt an ongoing or threatened violation, subject to a subsequent hearing right
3. Permanently bar a person from the industry with no review process
4. Award monetary damages directly to injured customers

Answer: B — Halt an ongoing or threatened violation, subject to a subsequent hearing right

B) Correct — a cease-and-desist order stops conduct, with hearing rights preserved. A) Imprisonment requires a criminal court process, not an administrative order. C) A cease-and-desist order isn't a permanent bar itself. D) It doesn't award damages to customers directly.

Which of the following entities is generally NOT liable in a private civil action brought under USA Section 410 by a buyer?

1. The seller of the unregistered, non-exempt security to the plaintiff-buyer in the underlying transaction at issue
2. Any partner, officer, or director of the seller who materially aided in the underlying transaction of the sale
3. Any agent of the seller who materially aided in effecting the specific sale to the plaintiff-buyer at any stage
4. A bank that provides only routine deposit services unconnected to the sale of the securities to the plaintiff

Answer: D — A bank that provides only routine deposit services unconnected to the sale of the securities to the plaintiff

A) Sellers are classic defendants. B) Materially aiding officers/partners are defendants. C) Materially aiding agents are defendants. D) Correct — routine banking unrelated to the sale isn't material aiding.

Is intent required for a criminal violation?

Yes — willful violation is required, but the defendant need not have known the specific provision violated. 'No knowledge' of the rule is a partial defense (no jail).

Can a violation lead to both civil suit and criminal prosecution?

Yes — they are independent. Different burdens of proof apply (preponderance for civil, beyond reasonable doubt for criminal).

When can a state Administrator require an IA's books and records?

At any time. The Administrator may inspect records, conduct examinations, and subpoena documents, even outside the state if the firm has clients there.