- the original purchase price of the securities "made whole" +
- interest at Administrator's rate
- all reasonable attorney's fees and court costs -
- any income received while client had securities
Rights of Recovery from Improper Investment Advice
- cost of the advice +
- loss as a result of the advice +
- interest at Administrator's rate +
- any reasonable attorney's fees
- improper sale: buyer can recover original purchase price + other losses
- improper investment advice: buyer can recover cost of advice + losses NOT original purchase price
Notes
- every cause of action survives the death of plaintiff/defendant
- civil liabilities imposed on seller, not buyer
- fraud is the deliberate or willful concealment, misrepresentation, or omission of material information/truth to deceive or manipulate another person for unlawful or unfair gain
- 5-5-3. 5 year statute of limitations, $5000 maximum fine, imprisonment of < 3 year. 2 years from discovery of offense or 3 years after act happened
- Not just seller is liable, supervisors can be too
right of rescission
- seller realizes sale made in violation of USA
- seller may offer to buy back securities from buyer
- letter of rescission, seller can avoid lawsuit, buyer has 30 days to respond, if buyer doesn't respond within 30 days, the buyer loses the right to a lawsuit
claims against the surety bond
- a proper surety bond allows a customer who can prove a violation to collect against the bond
Criminal penalties
- max fine of $5000, prison of 3 years
- cannot do prison if person proves no knowledge of rule or order
- Administrator does not have the power to arrest anyone
- State Attorney General may decide to bring a criminal action under the USA
Statute of limitations
- 5 years from the date of the offense
Case Study
- registered sales agent intentionally didn't tell client shares of company he sold were downgraded to speculative grade and their bonds were placed on credit watch by one of the major credit rating agencies, a month later the shares became worthless
- Verdict: agent sold securities in violation of USA, intentionally didn't mention material information needed to make an informed decision. Client has the right to recover the financial losses that result from the sale.
Judicial review of orders appeal
- an person under Administrator's order may obtain a review of the order in an appropriate court by filing a written petition within 50 days
- order will go into effect unless court rules otherwise
Quiz 2N
1. Which of the following statements relating to penalties under the USA is TRUE?
2. When making an offer of a new issue that is in registration to a prospective client, an agent claims that his registration with the Administrator is proof of his qualifications. Under the USA.
Sales of securities at financial institutions
- Model rules
- no B/D shall do B/D services where retail deposits are unless 1. separate areas for b/d and deposit
Customer disclosure and written acknowledgment
- oral acknowledgment
- securities are not insured by the Federal Deposit Insurance Corporation
- are not deposits or other obligations of the financial institution and are not guaranteed by the financial institution
- are subject to investment risks and are not guaranteed
- make reasonable efforts to obtain from each customer written acknowledgment of the disclosures
Communications with the public
- not FDIC insured
- no bank guarantee
- may lose value
NOT required
- radio broadcasts <30 seconds
- electronic signs or ATMS
- signs-banners and posters when used only as location indicators
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