Series 66

By Investopedia AAA

Remedies and Administrative Procedures - Other Penalties and Liabilities: Criminal

Criminal penalties arise when a person or an entity is proven guilty of consciously and willingly conducting a fraudulent securities transaction (in violation of the USA).


Look Out!
The key word in criminal liabilities is "fraudulent", meaning the violation was deliberate.


Once the Administrator makes an order (which can lead to fines and/or imprisonment), the person or entity affected may retort with a written petition of appeal within 60 days.


At the same time, the affected member (agent or broker-dealer) must serve the Administrator as well. Following this, the Administrator is obligated to provide the appropriate court with all evidence.

Unlike the normal judicial process, once the Administrator makes an order, it remains in effect until a court of law overturns it. Whatever the court decides in appeal is final, and the court has the right to change any part of the order.

Conviction
If the offender is convicted, he or she may not be imprisoned for more than three years, or pay more than $5,000 in fines (per violation).

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


Exam Tips and Tricks
It is crucial to remember that there can be no prison time if a person can prove that he or she had no knowledge that the USA was being violated.



Exam Tips and Tricks
You should be very familiar with the specific powers of the Administrator and the differences between civil and criminal penalties. Here are two questions that could come up on the exam:

  1. Of the following statements regarding the state Administrator's powers, which are TRUE?
    1. The Administrator may revoke a registration for the sole reason that it is "for the public good".
    2. If an IA's registration is suspended, any IARs who work for the IA will have their licenses suspended as well.
    3. If an IAR's registration is suspended, the license of the IA he/she works for is suspended as well.
    4. IAs, but not IARs, may have their registration revoked for failing to properly supervise employees.
    1. I & II only
    2. I & IV only
    3. I, II & III only
    4. II & IV only

The correct answer is "d": if the IA license is suspended, there can be no active IAR registrations, and IAs are responsible for supervising employees (IARs have no such responsibilities).

  1. A state Administrator can do all of the following EXCEPT:
    1. require a witness to testify at a hearing.
    2. inspect a broker-dealer who does business in the state, even if the broker-dealer is located in another state.
    3. suspend the constitutional privilege against self-incrimination.
    4. coordinate inspections with the SEC.

The correct answer is "c": while the Administrator can compel incriminating testimony, the privilege against self-incrimination is a constitutional one, and federal law must supercede state laws.

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