A broker-dealer firm has been operating for several years without any prior disciplinary history. Recently, one of its agents was found to have engaged in a pattern of fraudulent misrepresentations to clients. The state Administrator, after due process, has decided to revoke the agent's registration. What additional action can the Administrator take regarding the broker-dealer firm itself, under the Uniform Securities Act (USA)?
- AThe Administrator can automatically revoke the broker-dealer's registration due to the agent's actions.
- BThe Administrator can only issue a public censure against the broker-dealer firm.
- CThe Administrator can suspend or revoke the broker-dealer's registration if they find the firm failed to reasonably supervise the agent.
- DThe Administrator can fine the broker-dealer firm, but cannot suspend or revoke its registration without additional violations by the firm itself.
Show answer & explanationAnswer & explanation
Correct answer: C. The Administrator can suspend or revoke the broker-dealer's registration if they find the firm failed to reasonably supervise the agent.
Under the Uniform Securities Act, the Administrator has the power to suspend or revoke the registration of a broker-dealer if they find that the firm failed to reasonably supervise its agents. While an agent's individual misconduct doesn't automatically revoke the firm's registration, a lack of adequate supervision by the firm is a direct and actionable offense.
Why the other options are wrong
- A. Revocation is not automatic; the Administrator must find a failure in supervision or other direct firm misconduct.
- B. A public censure is a possibility, but the Administrator has stronger powers, including suspension or revocation, if supervisory failures are found.
- D. The Administrator can indeed suspend or revoke the firm's registration if a failure to supervise is proven, as this is considered a violation by the firm.
Firm Supervisory Responsibility (USA)
Broker-dealers and investment advisers have a responsibility to reasonably supervise their agents/IARs to prevent and detect violations of the Uniform Securities Act.
- Failure to reasonably supervise can lead to disciplinary action against the firm.
- This includes establishing and enforcing written supervisory procedures.
- The Administrator can suspend or revoke a firm's registration for supervisory failures.
Memory trick: Admin's 'Big Stick': If the firm didn't watch, the firm gets whacked.