The Uniform Securities Act Powers to Investigate, Order and Discipline, and the Limits That Send Cases to Court

The state Administrator is the official or agency that enforces a state’s securities law, and under the Uniform Securities Act it has broad powers to make rules, investigate, register and discipline. It can deny, suspend or revoke registrations, issue cease and desist orders, subpoena witnesses and records, and ask a court for an injunction.

What it cannot do is just as important for the exam. The Administrator cannot issue an injunction on its own, cannot send anyone to prison and cannot override the federal rules that protect federal covered securities and advisers.

This guide covers who the Administrator is, how far its jurisdiction reaches, each of its main powers, the limits on those powers, the penalties available, worked examples, the exam traps and five practice questions. For the registration process the Administrator oversees, FRC’s guide to what registration by coordination is explains how securities are registered at state level.

Who the Administrator Is

Every state has an official or agency responsible for its securities law. The Uniform Securities Act calls this person or body the Administrator, though the actual title varies, such as Securities Commissioner or Director of the Division of Securities.

The Administrator regulates securities offered in the state, along with the broker-dealers, agents, investment advisers and investment adviser representatives who do business there. It works alongside the federal Securities and Exchange Commission and self-regulatory organisations such as FINRA, but its authority comes from state law.

State Administrators work together through NASAA, the North American Securities Administrators Association. NASAA writes model rules, coordinates enforcement and, through FINRA, administers the Series 63, Series 65 and Series 66 exams.

Where This Topic Appears on the Exams

The Administrator’s powers appear in the laws and regulations section of the Series 65, and the same rules are tested on the Series 63 and Series 66. Questions often describe an action and ask whether the Administrator has the power to take it, and under what conditions.

FRC’s Series 65 Exam Preparation course covers the Uniform Securities Act and the Administrator’s powers in detail, and the exam requires no sponsor. The SIE Examination Preparation course introduces the federal and state regulators that oversee the industry.

Every FRC course can be spread across interest-free monthly payments, so cost is no reason to delay. Administrator questions follow a small set of rules about powers, procedure and limits, which makes them dependable marks once the pattern is clear.

How Far the Administrator’s Jurisdiction Reaches

The Administrator has jurisdiction over offers and sales that take place in its state. An offer is made in the state when it originates there or is directed into the state and received there.

An offer is accepted in the state when the acceptance is communicated to the offeror there. This means a single transaction can fall under the jurisdiction of more than one state, such as the state where the offer was made and the state where it was accepted.

There are exceptions for certain media. An offer in a bona fide newspaper published outside the state, or one with more than two thirds of its circulation outside the state in the past year, is not treated as made in the state, and the same applies to radio and television programmes originating outside the state.

The Power to Make Rules and Orders

The Administrator can make, amend and repeal rules, forms and orders needed to carry out the act. This includes defining terms, setting financial and record keeping requirements and prescribing the forms used for registration.

Rules and orders must be necessary or appropriate in the public interest, for the protection of investors and consistent with the purposes of the act. Most rules must be published, so that the industry knows what is required.

The Administrator can also issue interpretive opinions. These explain how the Administrator reads the act in a particular situation, and a person who relies on one in good faith is generally protected even if the opinion is later changed.

The Power to Investigate

The Administrator can make public or private investigations inside or outside the state. This allows it to look into possible violations wherever the evidence is, not just within its own borders.

As part of an investigation, the Administrator can subpoena witnesses, compel them to attend and testify, take evidence and require the production of books, papers, correspondence and other records. It can also require a person to file a statement under oath about the facts being investigated.

If a person refuses to obey a subpoena, the Administrator cannot punish them directly. Instead, it applies to a court, which can order the person to comply and hold them in contempt if they do not.

The Power to Issue Cease and Desist Orders

When the Administrator believes a person has engaged, or is about to engage, in an act that violates the securities law, it can issue a cease and desist order. The order directs the person to stop the conduct immediately.

A cease and desist order can be issued without a prior hearing. However, the person must be given notice and the opportunity for a hearing promptly afterwards, so the order can be challenged.

If the person ignores the order, the Administrator can go to court to enforce it. FRC’s guide to FINRA’s cease and desist orders and the Uniform Practice Code explains how the equivalent power works at FINRA.

The Power to Seek Injunctions

The Administrator cannot issue an injunction itself. It must apply to a court for one.

A court can grant a temporary or permanent injunction, appoint a receiver or conservator, order the return of money to investors and freeze assets. This is often used where a fraud is ongoing and investor money needs to be protected quickly.

This is one of the most tested points in the topic. The Administrator issues cease and desist orders, while only a court issues injunctions.

The Power Over Registration of Persons

The Administrator can deny, suspend or revoke the registration of a broker-dealer, agent, investment adviser or investment adviser representative. To do so, the order must be in the public interest and based on one of the grounds listed in the act.

The grounds include filing an incomplete or misleading application, such as a Form U4 with missing disclosures, willfully violating the securities law, a felony conviction within the past 10 years or a misdemeanour conviction involving securities, being subject to an injunction or an order of another regulator, engaging in dishonest or unethical practices, insolvency, failing to supervise and lacking the training, experience or knowledge needed for the business. The Administrator cannot deny registration solely because an applicant lacks experience, if they are qualified by training or knowledge.

Before a final order, the person is entitled to notice, an opportunity for a hearing and written findings of fact and conclusions of law. The Administrator can summarily postpone or suspend a registration pending the outcome of the proceeding.

The Power Over Registration of Securities

The Administrator has similar powers over securities registrations. It can issue a stop order denying, suspending or revoking the registration of a security if the order is in the public interest and one of the statutory grounds applies.

Grounds include a registration statement that is incomplete or misleading, an offering that would work a fraud on purchasers, unreasonable underwriting compensation or promoters’ profits, and a willful violation of the act. As with persons, the issuer is entitled to notice, a hearing and written findings before a final order.

The Administrator cannot use these powers against federal covered securities, because states cannot require their registration. FRC’s guide to what a federal covered security is explains the limits that federal law places on the states.

Withdrawal and Cancellation

A registered person can apply to withdraw their registration. The withdrawal generally becomes effective 30 days after the application is filed, unless a revocation or suspension proceeding is pending.

Even after a withdrawal becomes effective, the Administrator can still begin a revocation or suspension proceeding within one year. This stops a person from escaping discipline simply by withdrawing.

Cancellation is different from revocation. The Administrator cancels a registration when the person is no longer in business, cannot be located, has died or has been declared mentally incompetent, and cancellation is not a disciplinary action.

The Limits on the Administrator’s Powers

The Administrator’s powers are wide, but they are not unlimited. It cannot issue injunctions, cannot impose prison sentences and cannot hold someone in contempt without going to court.

It cannot require registration of federal covered securities or SEC-registered advisers, although it can require notice filings and fees. It also cannot set capital, custody, margin or record keeping requirements for broker-dealers that exceed those set under federal law.

Every final order must follow due process. Notice, an opportunity for a hearing and written findings protect the person or issuer against arbitrary action.

Penalties Under the Uniform Securities Act

There are three types of penalty: administrative, civil and criminal. Administrative penalties are the Administrator’s own sanctions, such as denial, suspension or revocation of registration, and many states also allow the Administrator to impose fines.

Civil liability allows an investor who bought a security in violation of the act to sue the seller. The investor can generally recover the purchase price plus interest and reasonable attorney fees, minus any income received, and a seller can offer rescission to limit its liability.

Criminal penalties apply to willful violations. Under the original Uniform Securities Act, a person can face a fine of up to $5,000, up to three years in prison, or both, but criminal cases are brought by state prosecutors in court, not by the Administrator.

Worked Example: An Unregistered Agent

The Administrator learns that an agent is selling securities to residents of the state without being registered there. It issues a cease and desist order the same day, without a hearing, directing the agent to stop.

The agent is notified and offered a hearing. Meanwhile, the Administrator investigates and subpoenas the agent’s sales records.

The agent refuses to hand over the records. The Administrator applies to a court, which orders the agent to comply and warns that refusal will be treated as contempt.

Worked Example: Denying a Registration

An applicant for agent registration has a felony conviction for fraud from eight years ago. The Administrator considers whether to deny the registration.

The conviction falls within the 10-year window, so it is a statutory ground. If the Administrator finds that denial is in the public interest, it can deny the application after giving notice, an opportunity for a hearing and written findings.

Had the conviction been 12 years ago, it would fall outside the 10-year period. The Administrator would need a different ground to deny the application.

Worked Example: An Ongoing Fraud

The Administrator discovers a Ponzi scheme that is still taking money from investors. A cease and desist order alone would not protect the funds already collected.

It applies to a court for a temporary injunction. The court freezes the scheme’s bank accounts and appoints a receiver to protect the assets for investors.

The Administrator also refers the case to the state prosecutor. Any prison sentence will come from a criminal court, not from the Administrator.

The Exam Traps

The first trap is believing the Administrator can issue an injunction. It can only ask a court for one, while it can issue cease and desist orders on its own authority.

The second trap is believing a cease and desist order always needs a prior hearing. It can be issued without one, but a hearing must be offered promptly afterwards.

The third trap is forgetting the due process requirements for final orders, which need notice, an opportunity for a hearing and written findings. The fourth trap is believing lack of experience alone is enough to deny registration, when the Administrator cannot deny on that basis if the applicant is qualified by training or knowledge.

FRC’s guide to Series 65 ethics and laws questions and exam traps covers more traps in this area. For the full list, see FRC’s guide to Series 65 exam traps and common mistakes.

A Memory Aid

Remember “the Administrator orders, the court enforces.” The Administrator issues rules, subpoenas, cease and desist orders and registration decisions, while a court issues injunctions, contempt orders and prison sentences.

For final orders, remember “notice, hearing, findings.” Those three steps must come before any final denial, suspension or revocation.

Practice Questions

Question one: can the Administrator issue an injunction? No, it must apply to a court for one.

Question two: can the Administrator issue a cease and desist order without a prior hearing? Yes, but it must offer a hearing promptly afterwards.

Question three: an agent withdraws their registration, and three months later the Administrator learns of a violation. Can it still start a revocation proceeding? Yes, it has one year after the withdrawal becomes effective.

Question four: a person refuses to obey the Administrator’s subpoena. Who can hold them in contempt? A court, on the Administrator’s application.

Question five: can the Administrator deny an agent’s registration solely because the applicant has no industry experience? No, not if the applicant is qualified by training or knowledge.

Related Questions

The Administrator’s registration powers apply to investment adviser representatives in every state where they must register. FRC’s guide to investment advisor representative requirements by state explains how those requirements differ from one state to the next.

Get Exam-Ready

Administrator questions reward candidates who know which powers belong to the Administrator and which belong to a court. Once that dividing line and the due process steps are clear, these questions become some of the most dependable marks on the exam.

The FRC dictionary is more than a dictionary. It is a library of explainer videos, written explanations and on-page quizzes covering the FINRA and SEC rules you are tested on, so you can open any term and go deeper whenever a question catches you out.

Study With FRC

FRC’s programs and memberships are open to everyone. Whether you are preparing for the Series 65, the SIE or both, structured exam preparation turns topics like state securities law into marks you can rely on.

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Your Next Step

The state Administrator can make rules, investigate, issue subpoenas and cease and desist orders, and deny, suspend or revoke registrations when it is in the public interest and a statutory ground applies. It must go to court for injunctions, contempt and criminal penalties, and every final order requires notice, a hearing and written findings.

Remember “the Administrator orders, the court enforces,” and you will be ready for every version of this question the exam can ask.