Sanctions, Civil Liabilities & Criminal Penalties
Examines cease-and-desist orders, the two-prong disciplinary test, the 10-year lookback for convictions, civil liability recovery formulas, 30-day rescission, and criminal penalties.
- To deny or revoke registration, the Administrator must establish: (1) Public interest, PLUS (2) A specific statutory cause.
- Civil Liability Formula: Original Purchase Price + Legal Interest + Reasonable Attorney Fees - Income Received.
- Right of Rescission: If a customer does not accept a written rescission offer within 30 days of receipt, the right to sue is barred.
- USA 1956 Criminal Penalties: $5,000 max fine, 3 years imprisonment, 5-year statute of limitations.
The Uniform Securities Act equips the Administrator and defrauded investors with powerful administrative, civil, and criminal remedies.
Administrative Sanctions: The Administrator may issue summary Cease-and-Desist orders without prior notice, with a hearing required within 15 days upon written request. To deny, suspend, or revoke a registration, the Administrator must satisfy a two-prong test: the action must be in the PUBLIC INTEREST, and the registrant must meet a specific STATUTORY CAUSE (such as a felony conviction within the past 10 years).
Civil Liability (Section 410): Defrauded investors may sue to recover the full consideration paid, plus statutory interest from the date of payment, plus reasonable attorney fees and court costs, minus any income received on the security. Sellers can cure violations by extending a written Offer of Rescission; if the customer fails to accept the rescission offer within 30 days, the right to bring a civil lawsuit is permanently barred. The civil statute of limitations is the earlier of 2 years from discovery or 3 years from the transaction date.
Criminal Penalties (Section 409): For willful violations of the Act, a criminal court may impose a fine of up to $5,000, imprisonment for up to 3 years, or both. The criminal statute of limitations is 5 years. Only the court of criminal jurisdiction—never the Administrator—can sentence an offender to prison.
- Public interest ALONE is never sufficient to revoke a registration; a statutory cause is mandatory.
- State civil liability does NOT provide treble or punitive damages; plaintiffs recover consideration paid plus interest and legal fees.
An investor purchases $20,000 of unregistered, non-exempt securities from an unregistered broker-dealer agent who made material misstatements of fact. During the holding period, the investor received $1,200 in cash dividends. Upon discovering the fraud, the investor sues the agent under Section 410 of the Uniform Securities Act. What is the investor entitled to recover in a civil lawsuit?