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.

Example
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?

Answer
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Second, Billy rescinded the offer in three days, but had guaranteed 10%, which would equate to $3.65 a day.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. Investing

    What does "Capitalize" Mean?

    “Capitalize” is an accounting term that describes the method a company uses to record costs paid for assets. Most companies have policies about how and when to record purchases and costs as assets ...
  2. Financial Advisor

    Manage Your Clients' Expectations

    You can't control how they react to the market, but you can help them understand the reality of the situation.
  3. Financial Advisor

    How to Construct an Annual Review for Clients

    One of the best things that advisors can provide to clients is an annual review of their financial situation. Here are some guidelines.
  4. Tech

    Advisors Need to Talk Less, Ask and Listen More

    Financial advisors spend a lot of time giving their clients advice on how to invest their money. But what they often forget to do is listen.
  5. Personal Finance

    When (And How) To Fire A Client

    Firing the clients who take more of your time and effort than the revenue they contribute is a great way to improve your bottom line.
  6. Small Business

    How Often Should You Contact Clients?

    Figuring out how often an investment advisor should contact clients is not easy.
  7. Financial Advisor

    How Financial Advisors Manage Liquidity Risk

    Financial advisors have to carefully consider a client's willingness and ability to take investment risks, including tax concerns and liquidity needs.
  8. Small Business

    Tips For Boosting Your Business

    Find out how butter up new clients, build up old files and better your bottom line.
  9. Financial Advisor

    Is Your Client Ready for an Early Retirement?

    Make sure these factors are on your checklist to ensure your client can retire early.
  10. Financial Advisor

    Top Tips for Inheriting a Book of Clients

    Inheriting another advisor's book of clients can be a big boon. Here are some tips on how to handle the transition.
Frequently Asked Questions
  1. What are the Differences Among a Real Estate Agent, a broker and a Realtor?

    Learn how agents, realtors, and brokers are often considered the same, but in reality, these real estate positions have different ...
  2. What is the difference between amortization and depreciation?

    Because very few assets last forever, one of the main principles of accrual accounting requires that an asset's cost be proportionally ...
  3. Which is better, a fixed or variable rate loan?

    A variable interest rate loan is a loan in which the interest rate charged on the outstanding balance varies as market interest ...
  4. What is the 1003 mortgage application form?

    Learn about the 1003 mortgage application form, what information it requires and why this form is the industry standard for ...
Trading Center