Remedies and Administrative Procedures - Other Penalties and Liabilities: Civil

Civil liabilities arise when a violation of the USA has occurred and the person harmed wishes to recover any losses incurred.

All securities professionals are liable for civil penalties if the USA is violated. Where there is an infraction of the USA, purchasers of securities can sue for recovery of losses.

When a client can sue:

  • A direct violation of the USA occurred, where a securities transaction ensued.
  • An agent, broker-dealer or investment advisor sold securities in violation of a direct rule of the Administrator.
  • Securities were sold by an unregistered person.
  • Misleading statements, or omitted facts, led to the sale of a security.
  • The securities sold were either misrepresented as being approved (recommended) by the Administrator or another governing body, or misrepresented as being listed (or to be listed) on an exchange, when in fact the information was false.
  • There was a violation of the state's sales literature requirements.

If a violation occurs, a purchaser can then sue for damages. The formula relating to recovery is fairly simple. Purchasers can sue for:

Reasonable attorney fees, and other costs

+ Interest
+ The purchase price of the securities
- Any income (dividend or interest) received
= Damages


Exam Tips and Tricks
You will notice that this formula can be summed up by the acronym RITA. When you write the test, it may be helpful to think, "RITA\'s a little upset with her broker, and she\'s ready to sue!" Although civil penalties are no laughing matter in real life, the humor should help you remember the damages formula for the exam.


Example
Bob's broker lied to him about a stock, telling him the state Administrator had approved (and recommended) the stock for purchase. Bob's broker further suggested that Bob should buy the stock, since the Administrator's listing endorsement made it a sure thing. Consequently, Bob bought $1,000 of the stock. Three weeks after his investment, he received a dividend payment for $15, which pleased him greatly. Shortly after, the company released a negative press release. This triggered a sharp sell-off, and the stock's price was cut in half. Bob sold the stock to retain $500 of his initial investment. Soon after, Bob decided to sue his broker, even though the legal costs would be around $300. What can Bob sue his broker for?

Answer
Reasonable attorney fees, and other costs $300
+ Interest $0.00
+ The purchase price of the securities $500
- Any income (dividend, or interest) received $15.00
= Damages $775


*The original purchase price is $500 because Bob sold the investment - holding on to $500 (half) of his original investment.

Other Penalties and Liabilities: Investment Advice and Rescission
Related Articles
  1. FA

    The Basics of The Series 79 Exam

    Passing the Series 79 exam is usually necessary for anyone who wants to work in investment banking.
  2. Term

    What is the Series 66?

    The Series 66 exam is one of two tests required to register as both a securities agent and an investment advisor.
  3. Professionals

    Breaking Down Financial Securities Licenses

    Find out which exam you need to begin your career as an investment professional.
  4. 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.
  5. 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.
  6. Investing Basics

    Brokers and RIAs: One and the Same?

    Brokers and registered investment advisors have some key differences. Here's what you need to know.
  7. Professionals

    Understanding Series 6

    Upon successful completion of the Series 6, an individual will have the qualifications needed to sell open end mutual funds and variable annuities
  8. Professionals

    Top Strategies on How to Become a Stock Broker

    Gunning to be a stock broker and want an edge? Here's some veteran advice.
  9. Trading Systems & Software

    Steps to Starting Up an Independent Broker Dealer

    Launching your own broker-dealer is a lot of work, but the potential payoff is great, both personally and financially.
  10. Professionals

    Understanding Series 63

    Series 63 is a securities license that entitles the holder to sell securities in a particular state.
RELATED TERMS
  1. Series 6

    A securities license entitling the holder to register as a limited ...
  2. Series 79

    A examination to ensure a candidate is qualified to become a ...
  3. Research Analyst

    A person who prepares investigative reports on equity securities. ...
  4. Series 34

    An exam required for individuals seeking to engage in off-exchange ...
  5. Financial Advisor

    One who provides financial advice or guidance to customers for ...
  6. Series 28

    An exam given by the Financial Industry Regulatory Authority ...
RELATED FAQS
  1. Is a financial advisor required to have a degree?

    Financial advisors are not required to have university degrees. However, they are required to pass certain exams administered ... Read Full Answer >>
  2. If I have only a limited amount of time to study for the Series 6, what should I ...

    The Series 6 Investment Company and Variable Contracts Products Representative Qualification Examination is administered ... Read Full Answer >>
  3. What role does the 'chip cycle' play in the electronics sector?

    There are several highly acclaimed private Series 6 Exam courses in the United States. Many can be completed online. Popular ... Read Full Answer >>
  4. What does passing the Series 6 enable me to do?

    The Series 6, or the Investment Company Products/Variable Contracts Limited Representative, exam is administered by the Financial ... Read Full Answer >>
  5. What are the differences between the Series 6 exam and the Series 7 exam?

    The Financial Industry Regulatory Authority (FINRA) offers a variety of licenses that must be obtained before conducting ... Read Full Answer >>
  6. Do I have to successfully complete the Series 7 exam before I can register for the ...

    There are no prerequisites to register for the Series 63 exam. However, once you have registered for the exam, you must schedule ... Read Full Answer >>
Hot Definitions
  1. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  2. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  3. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  4. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  5. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  6. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
Trading Center