Administrative Provisions and Other Remedies - Rescission

If an agent/person discovers a violation the USA, a letter of rescission (containing an offer to buy back the security in question) may be tendered. Of course, the letter of rescission must also take into consideration (and make an offer for) any interest potentially gained or lost.

In short, the above formulas for civil losses apply equally to letters of rescission -- with the exception that the party issuing the letter is generally trying to avoid legal fees. In addition, it is important to note that once a rescission offer is tendered, the buyer of the securities is required to respond in 30 days. Otherwise, he/she gives up all rights to future legal action.

Billy, an agent of Bad Boy Brokers, Inc., discovers that he has violated the USA by misquoting dividend information that led to the purchase of a security by a customer. Although Billy's firm has a reputation for a few run-ins with the Administrator, he is trying to help re-establish the firm's reputation as a reliable business. He realizes that his client invested $1,000, expecting a 10% dividend. Billy immediately offers to repurchase the securities, expressly through a letter of rescission. From the time that Billy sends the letter and his client agrees to sell the securities (three days), the stock appreciates $5. Billy's client sells the securities to Billy for a $5 profit Assuming no commissions are paid, what is the total amount Billy owes his client?

First, Billy owes his client $995, as the client already received $5 in capital gains.

Second, Billy rescinded the offer in three days, but had guaranteed 10%, which would equate to $3.65 a day. Thus, Billy owes his client $10.95 in interest. Thus, Billy's total tally is $995 + $10.95, working out to $1,005.95 (assuming that the client already received an additional $5). For the sake of this example, we are not considering commissions either.

Note: "C"omputing the dollar amounts of awards under the provisions of the civil liabilities section of the USA is not a usual type of question on the Series 63. Just remember that under the USA, the maximum liability payment to the buyer by the seller is:

The original investment
+ The state's legal rate of interest
- Any income received from the investment
+ Court costs and attorney's fees
= Total potential payment to client by seller to the buyer.


Exam Tips and Tricks
Note: If the seller offers a refund of the original investment at the state's legal rate (less any income) and the client does not accept the offer within 30 days, the buyer may not sue. This concept is frequently reported by persons who have taken the Series 63 exam.


Criminal Penalties and Other Provisions
Related Articles
  1. Professionals

    Career Advice: Stockbroker Vs. Insurance Agent

    Compare and contrast careers as a stockbroker and insurance agent. Understand the skills and attributes required for success in each career.
  2. Economics

    What's the 1913 Federal Reserve Act?

    The 1913 Federal Reserve Act was a pivotal congressional act that helped establish the Federal Reserve System as it exists today. It is one of the United States financial system’s most influential ...
  3. Investing News

    Could a Rate Hike Send Stocks Higher?

    A rate hike would certainly alter the investment scene, but would it be for the better or worse?
  4. Professionals

    Will Interest Rates Rise at the Next Fed Meeting?

    Everyone wants to know what the Federal Reserve will do next, but the Fed doesn't even know what it's next move will be.
  5. Professionals

    Career Advice: Financial Analyst Vs. Investment Banker

    Read an in-depth comparison about working as a Financial Analyst vs. working as an Investment Banker, two highly prestigious business careers.
  6. Professionals

    3 ETFs to Play the Fed's Interest Rate Decision

    These three ETFs offer strong ways to play the Federal Reserve's decision not to raise rates.
  7. Professionals

    Who Needs to Take the Series 65?

    Most states require individuals to pass the Series 65 exam in order to act as investment advisors.
  8. Investing Basics

    How to Vet Financial Advisors Via BrokerCheck

    Many people research restaurants or movies, but few select brokers or financial advisors with much research. Here's how BrokerCheck can help.
  9. Professionals

    Career Advice: Financial Planner Vs. Stockbroker

    Read an in-depth review of a career as a financial planner as opposed to a career as a stockbroker, including how to decide which is best for you.
  10. Investing Basics

    Is a Rate Hike Already Priced Into the Market?

    Is the recent selloff in equities related to the Fed's probable interest rate hike, or are problems bigger than the Fed wants us to believe?
  1. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin ...
  2. Series 6

    A securities license entitling the holder to register as a limited ...
  3. Comprehensive Automated Risk Data ...

    The Comprehensive Automated Risk Data System (CARDS) is an initiative ...
  4. Corporate Financing Committee

    A regulatory group that reviews documentation that is submitted ...
  5. Division Of Reserve Bank Operations ...

    An entity under the Federal Reserve System that manages certain ...
  6. Series 79

    A examination to ensure a candidate is qualified to become a ...
  1. Is there a limit on the number of times I can re-take the Series 63 exam?

    There is no limit to the number of times a candidate may retake the Series 63 exam. The North American Securities Administrators ... Read Full Answer >>
  2. How long must I wait after failing the Series 63 exam before I can take it again?

    Waiting periods are in place for candidates who wish to retake the Series 63 exam. Between retakes, the waiting period is ... Read Full Answer >>
  3. My 120-day Series 63 exam window is about to close, but I need more time to study. ...

    Extensions are available on rare occasions. Candidates should apply for an extension with the North American Securities Administrators ... Read Full Answer >>
  4. Do I have to be a U.S. citizen to sit for the Series 63 exam?

    United States citizenship is not required for Series 63 test-takers. Candidates may take the exam inside or outside the U.S. ... Read Full Answer >>
  5. Are waivers granted to the 180-day waiting period to re-take the Series 63 exam?

    Candidates retaking the Series 63 exam must wait for 30 days after failing it on the first or second attempt. After failing ... Read Full Answer >>
  6. If I failed the Series 66, does the waiting period apply if I want to take the Series ...

    The waiting period only applies to retaking the same North American Securities Administrators Association (NASAA) exam. Candidates ... Read Full Answer >>
  7. How often, and how, is a series 63 exam updated?

    Series 63 exams draw questions from a test bank based on state regulations, the Uniform Securities Act and North American ... Read Full Answer >>
  8. Are series 63 exams given outside of the United States?

    Series 63 exams are offered at authorized testing centers around the world. The exam does not require U.S. citizenship. Test ... Read Full Answer >>
  9. Does NASAA or anyone else give out the series 63 exam questions?

    Outside of the proctored exam, no access to Series 63 exam questions is offered. Providing access to questions would invalidate ... Read Full Answer >>
Hot Definitions
  1. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  2. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  3. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  4. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  5. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
  6. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!