The Administrator's Authority

Jurisdiction

The Act reaches an offer to sell or to buy when the offer originates in the state or is directed by the offeror to the state and received where it is directed. It also reaches an acceptance communicated to the offeror in the state.

So a state has jurisdiction if the offer came from there, went there, or was accepted there. Two states can both have jurisdiction over the same transaction, and both may act.

The Act excludes some things from the definition of an offer made in a state: a television or radio broadcast originating outside the state, and a publication circulated in the state that is published outside the state, or published inside the state but with two-thirds or more of its circulation outside it in the last twelve months. The idea is that general media distribution is not a targeted offer.

An offer directed to a person in the state remains within the Act's reach whether or not the offeror or the offeree is physically present.

Rules, orders and investigations

The Administrator may make, amend and rescind rules, forms and orders necessary to carry out the Act. A rule applies generally; an order applies to a specific person or situation. No rule or order may be made unless the Administrator finds it is in the public interest and consistent with the purposes of the Act, and no provision imposing liability applies to an act done in good faith in conformity with a rule or order — even if the rule or order is later amended, rescinded or held invalid.

That last provision is a genuine safe harbour and it is testable: good-faith reliance on the Administrator's own rule is a defence.

Investigations. The Administrator may in their discretion make public or private investigations, within or outside the state, to determine whether any person has violated or is about to violate the Act or a rule or order under it, or to aid in enforcement or rulemaking. The Administrator may require or permit any person to file a written statement as to the facts, and may publish information concerning any violation.

Subpoena power. For any investigation or proceeding, the Administrator may administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence, and require the production of books, papers, correspondence, memoranda, agreements or other records deemed relevant.

What the Administrator cannot do is compel obedience directly. On refusal to obey a subpoena, the Administrator applies to a court, which may order the person to appear and may punish failure to obey as contempt. The Administrator issues subpoenas; the court enforces them.

Self-incrimination. No person is excused from testifying or producing records on the ground that the evidence may incriminate them — but no individual may then be prosecuted or penalized on account of the matter about which they were compelled to testify after claiming the privilege, except for perjury or contempt committed in testifying. That is a grant of immunity in exchange for compelled testimony.

The Administrator may also issue and enforce subpoenas at the request of another state's securities agency, where the alleged conduct would violate this state's act if it had occurred there.

Orders against conduct and against offerings

Where it appears that a person has engaged or is about to engage in a violation, the Administrator has two remedies and may use either or both.

A cease and desist order, which the Administrator issues directly, with or without a prior hearing, directing the person to stop the illegal activity. This is administrative — no court is involved — and the power to issue it without a prior hearing is one of the most heavily tested facts in this part of the Act.

An injunction, which requires going to court. On a proper showing the court may grant a permanent or temporary injunction, a restraining order or a writ of mandamus, and may appoint a receiver or conservator for the defendant or their assets. The court may also enter an order of rescission, restitution or disgorgement. The Administrator is not required to post a bond.

The distinction to hold: the Administrator issues cease and desist orders; only a court issues injunctions. An exam answer saying the Administrator issued an injunction is wrong.

Against a securities registration, the Administrator may issue a stop order denying effectiveness, or suspending or revoking effectiveness, on grounds including that the registration statement is incomplete or misleading in a material respect, that the offering would work a fraud, that the enterprise or method of business is illegal, that the offering has been or would be made with unreasonable amounts of underwriters' or sellers' compensation or unreasonable promoters' profits, or that a required consent to service of process has not been filed.

And against a registrant, the Administrator may deny, suspend or revoke a registration, or bar or censure, on the grounds set out in lesson 2.1 — always requiring both a public interest finding and an enumerated ground.

The procedural constraints

Two protections limit everything above, and they are the most commonly tested provisions in this topic.

First, no order denying, suspending or revoking a registration may be entered without prior notice to the applicant or registrant — and to the employer or prospective employer, where the registrant is an agent or investment adviser representative — an opportunity for hearing, and written findings of fact and conclusions of law. Three requirements, and the exam expects all three named.

Second, the Administrator may summarily postpone or suspend a registration pending final determination of a proceeding. Where that is done, the Administrator must promptly notify the applicant or registrant, and the employer, that the order has been entered, of the reasons for it, and that within fifteen days after receiving a written request the matter will be set down for hearing. If no hearing is requested and none is ordered, the order remains in effect until modified or vacated.

So the sequence for a summary suspension is: order first, notice immediately, hearing on request within fifteen days. That is the exception to the notice-before-order rule, and it exists so that an urgent threat can be stopped while due process follows.

A person aggrieved by a final order may obtain judicial review by filing a petition in the appropriate court within sixty days. Filing the petition does not by itself stay the order; the court may order a stay on terms it considers proper.

Two more provisions worth knowing. The Administrator may by rule or order withdraw or further condition an exemption, or waive conditions of one — exemptions are conditional grants, and an order denying or revoking one is subject to the same notice and hearing requirements. And the Administrator may honour, and may seek, the cooperation of other states' administrators, which is why a bar in one state so often produces proceedings in others.