NASAA Series 66 Uniform Combined State Law ExaminationLaws, Regulations, and Guidelines, including Prohibition on Unethical Business PracticesMedium
The Administrator of State X has received multiple complaints alleging that a registered investment adviser (IA) has been engaging in fraudulent advertising practices. The Administrator initiates an investigation. Under the Uniform Securities Act (USA), which of the following powers does the Administrator possess during this investigation?
- AThe Administrator may impose criminal penalties for fraudulent advertising.
- BThe Administrator may unilaterally revoke the IA's registration based on the complaints.
- CThe Administrator may issue a cease and desist order without prior notice or hearing.
- DThe Administrator may subpoena witnesses and compel the production of documents from the IA.
Show answer & explanationAnswer & explanation
Correct answer: D. The Administrator may subpoena witnesses and compel the production of documents from the IA.
During an investigation, the Administrator has broad powers to gather information, including the ability to subpoena witnesses, compel testimony, and require the production of books, papers, or other records. This is essential for determining if a violation has occurred.
Why the other options are wrong
- A. The Administrator can only initiate administrative actions (e.g., fines, suspension, revocation). Criminal penalties are imposed by courts, typically after referral from the Administrator to the appropriate legal authorities.
- B. Revoking registration is a final disciplinary action that requires notice, an opportunity for a hearing, and findings of fact, not just based on initial complaints.
- C. A cease and desist order typically requires prior notice and an opportunity for a hearing, unless it's a summary order based on immediate threat, which is not stated here as the initial step of an investigation.
Administrator's Investigative Powers
Under the Uniform Securities Act (USA), the State Administrator has broad investigative powers, including the authority to subpoena witnesses, compel testimony, and require the production of documents to determine if a violation of the Act has occurred.
- Initiated by complaints or suspicion.
- Power to demand information (subpoena).
- Power to compel testimony.
- Purpose is fact-finding, not immediate punishment.
- Can be conducted publicly or privately.
Memory trick: Administrator's crown gives power to seek, not just speak.