Series 63

By Investopedia AAA

Administrative Provisions and Other Remedies - Criminal Penalties and Other Provisions

Criminal penalties arise when a person or entity is proved guilty of a fraudulent securities transaction entailing a deliberate violation of the USA.

Exam Tips and Tricks
The key word in criminal liabilities is "fraudulent", meaning that the violation was deliberate.

Once the Administrator issues an order (which may result in denial, suspension or revocation of registration), the offending person or entity may appeal the Administrator's order to the appropriate court, but must do so within 60 days of the order, under the Uniform Securities Act.

Simultaneously, the affected member (agent or broker-dealer) must serve notice of the appeal to the Administrator as well. Upon receipt of the notice of appeal, the Administrator is obligated to provide the appropriate court with all evidence relevant to the case.

Unlike the normal judicial process, once the Administrator issues an order, it remains in effect unless reversed by court order. The fact that an appeal has been filed does not negate the Administrator's order unless directed by a court. The finding of courts regarding appeals is final, and the court has the right to change any part of the order.

Conviction
If the offender is convicted of criminally violating the USA, he/she may be imprisoned for up to 3 years, or fined up to $5,000 (per violation).

Statute of Limitations
The statute of limitations for criminal penalties is 5 years.

Exam Tips and Tricks
It is vitally important to note that there can be no prison sentence if a person can PROVE he/she had NO KNOWLEDGE that the USA was being violated!

The Uniform Securities Act provides that an Administrator may demand a firm to "require the filing of any prospectus, pamphlet, circular, form letter, advertisement, or other sales literature or advertising communication addressed or intended for distribution to prospective investors, including clients or prospective clients of an investment adviser, unless the security or transaction is exempted."

Exempted securities include:

  • Federal covered securities
  • Any security issued or guaranteed by Canada
  • Any security issued by a foreign national government with whom the US has diplomatic relations
  • Any security issued or guaranteed by a bank, savings institution or trust company
  • Any security issued or guaranteed by any credit union (federal or otherwise)
  • Any security issued or guaranteed by any railroad, other common carrier, public utility or holding company
  • Securities issued or guaranteed by nonprofits (e.g., church bonds)
  • Any investment contract issued in connection with an employee's stock purchase, savings, pension, profit sharing or similar benefit plan

Additionally, there could be a question regarding the Telephone Consumer Protection Act (TCPA) of 1991, which states that telemarketing organizations must adhere to the following requirements:

  • Do-not-call (DNC) lists. When a prospective caller requests to be placed on a DNC list, the firm must keep his/her name on the list for 5 years.
  • Telemarketing firms must make sure that its representatives understand how to use the DNC list and immediately record any names and phone numbers of those who wish to be placed on the list.
  • Telemarketers may ONLY call homes of prospective clients between the hours of 8a.m. and 9p.m. in the customer's time zone.
Introduction

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