Module 4: Remedies and Administrative Provisions

• Topic 01

  Powers of the State Securities Administrator

  203 questions
• Topic 02

  Registration Actions

  137 questions
• Topic 03

  Civil Liabilities and Criminal Penalties

  159 questions

A few questions from this unit, with the answer and a full explanation. The complete bank is available when you start practising.

1. What must the administrator provide before taking any final adverse registration action?

   • A
     Only verbal notice at a public meeting; written notice is not required under the USA.
   • B
     Written notice to the applicant or registrant specifying the grounds for the proposed action and the right to request a hearing.
     Correct answer
   • C
     A court order authorizing the administrator to proceed with the adverse action.
   • D
     A referral to the state attorney general for criminal review before administrative action may proceed.
   Explanation

   Due process requires that before any final adverse action is taken, the registrant receive written notice specifying the proposed grounds and their right to request a hearing. This ensures the registrant can meaningfully respond to the charges before the action becomes final.

2. What civil remedy is available when an agent omits a material fact when recommending a security to a client?

   • A
     The client may bring a civil action for damages or rescission under the USA's antifraud provisions
     Correct answer
   • B
     The client must first prove the agent intended to deceive before a civil action is available
   • C
     The client may only seek rescission if they still hold the security; damages are unavailable for omissions
   • D
     The client's only remedy is to accept the administrator's offer of restitution through the administrative process
   Explanation

   Omitting a material fact in recommending a security to a client violates the USA's antifraud provisions. The injured client has a private right of action and may seek either rescission (if they still hold the security) or damages (measured as the purchase price plus interest less income received and less sale proceeds, if the security has been sold). No proof of fraudulent intent beyond the knowing or negligent omission is required in a civil action.

3. What does "wilful" mean in the context of criminal liability under the Uniform Securities Act?

   • A
     The person knew their conduct violated state securities law and proceeded anyway
   • B
     The person acted with gross negligence or reckless disregard for the law
   • C
     The person had a prior conviction for the same type of offense, making the current act willful by operation of law
   • D
     The person intentionally performed the prohibited act; they need not have known the act was illegal, only that they chose to do it
     Correct answer
   Explanation

   Under the USA, a "wilful" violation means the person intentionally performed the conduct in question — they made a deliberate choice to do what they did. The prosecution does not need to show the defendant knew their conduct violated a specific securities law. The classic example: a person who knowingly sells unregistered securities has wilfully violated the registration requirement even if they believed (incorrectly) that no registration was required. Intent to break the law is not required; intent to do the act is sufficient.