Understanding Laws And Regulations

Understanding Laws And Regulations On The Series 66 Exam
The Uniform Combined State Law Examination

One of the keys to passing the Series 66 exam is to make sure that you have a complete understanding of how laws and regulations will be tested on the Series 66 Exam. This article which was produced from material contained in our Series 66 textbook and will help you master the material so that you pass the Series 66 exam.

Introduction

The state securities administrator has the authority to enforce all of the provisions of the Uniform Securities Act (USA) within their state. The state securities administrator may deny, revoke, or suspend the registration of a security, an agent, or a firm. The administrator may also revoke an exemption from registration, subpoena and investigate any registrant, and amend rules as required. The North American Securities Administrators Association or NASAA is the oldest investor protection organization in the country and represents the interest of all of the state securities administrators. NASAA also writes policies and administers the series 63, 65, and 66 exams.

Actions by the State Securities Administrator

A state securities administrator may take action to bar, suspend, censure, or restrict the activities of a registrant if the administrator finds it in the public interest, and the applicant or registrant does one or more of the following:

• Fails to pay filing fees
• Is insolvent
• Fails to supervise employees
• Willfully violates the securities or banking laws of another country or has had a foreign regulator deny, revoke, or suspend its registration within the last five years
• Violates federal securities or commodities laws
• Has been convicted of any felon within the last 10 years
• Has been convicted of a securities-related misdemeanor
• Willfully violates any provision of the USA
• Files an incomplete, false, or misleading application for registration
• Has been temporarily or permanently enjoined from the securities business by a court of law
• Has been subject to an order by a state securities administrator denying, revoking, or suspending its registration
• Is deemed unqualified due to a lack of experience, training, or knowledge
• Engages in unethical or dishonest business practices

The administrator deeming it is in the public interest is not enough to take action. The applicant must have been involved in one or more of the activities listed above. If the administrator is going to take action against the applicant, it must notify them promptly in writing of their intention and must provide a hearing for the applicant within 15 days of receiving the request for a hearing. An administrator may deny an applicant’s registration based on lack of knowledge, training, or experience but a lack of experience, may not be the sole basis for the denial of a registration.

Cancellation of a Registration

The administrator may cancel the registration of a broker dealer, investment adviser, or an agent if the registrant or applicant no longer exists, has ceased doing business, or cannot be located. An individual’s registration may be cancelled if they have been deemed incompetent.

Withdrawal of a Registration

A broker dealer, investment adviser, or an agent may request that their registration with the state be withdrawn. The withdrawal will become effective 30 days after the administrator receives the request if no revocation or suspension proceedings are in process. The administrator has up to one year after the withdrawal of an applicant’s registration to take action against the applicant to suspend or revoke their registration.

Actions Against an Issuer of Securities

The administrator may deny, revoke, or suspend the registration of a security if it deems it is in the public interest and:

• Any officer or director has been convicted of a securities crime
• The registration statement is false, misleading, or incomplete
• The security is subject to a court injunction
• Promoter’s fees or offering expenses are excessive or unreasonable
• The offering is fraudulent

The administrator may also revoke a security’s exemption from registration if it is in the public interest and the exemption was based on a false, misleading, fraudulent, or unethical practice or statement. An administrator may, without prior notice, revoke the exempt status of a securities transaction.

Rule Changes

An administrator may change or amend rules as he or she deems necessary. All rules enacted by the administrator will have the same force and effect as rules enacted under the USA. An administrator’s order may be appealed to the court system within 60 days.

Investigations

A state securities administrator may investigate a broker dealer, an investment adviser, or an agent in any state if they feel that a violation has taken or may take place. The administrator may also subpoena people, books, and records in any state and may administer oaths to compel people to testify. Anyone who displays contempt for the administrator’s order is guilty of contumacy and may be found in contempt of court if the administrator asks the court to enforce its orders.

Civil and Criminal Penalties

A state securities administrator may issue a cease and desist order without a prior hearing or notice. The administrator may appoint a receiver to oversee the assets of violators and may require them to make restitution. Anyone who is found to have criminally violated the laws of the USA is subject to a $5,000 fine and/or three years in prison. People who criminally violate the Investment Advisers Act of 1940 are subject to a $10,000 fine and/or five years in prison. The statute of limitations for an administrator taking action is five years.

An investor who sues for a violation of the Uniform Securities Act is entitled to receive:

• The value that they paid for the securities minus any income received during the holding period (for example, dividends)
• Interest on their money for the holding period
• Court costs

Civil actions may be taken against:

• An agent
• A firm
• The agent’s supervisor

If an investment adviser violates the provisions of the USA, clients may sue to recover:

• Advisory fees
• Losses
• Interest on the money
• Attorney fees and court costs, minus any income received as a result of the advice