This section discusses the administrative actions that can be taken against individuals or firms who violate securities laws, regulations, and guidelines. These actions are designed to protect investors and maintain the integrity of the financial industry. We will also explore the remedies available to investors who unethical business practices have harmed.
Which of the following is NOT an administrative action?
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Correct!
Select an option above to see an explanation here.
A) Cease and desist orders are administrative actions issued by regulatory authorities. B) Censures are formal reprimands issued by regulatory authorities. C) Criminal prosecution is a legal action taken against individuals or firms for violating criminal laws, not an administrative action. D) Suspensions are temporary prohibitions on individuals or firms from engaging in certain activities or holding certain positions within the financial industry.
What is the primary purpose of administrative actions?
A) While punishment may be a secondary effect, the primary purpose of administrative actions is to protect investors and maintain the integrity of the financial industry. B) Correct. C) Generating revenue is not the primary purpose of administrative actions. D) Deterrence may be a secondary effect, but the primary purpose of administrative actions is to protect investors and maintain the integrity of the financial industry.
In the early 2000s, a major financial firm was found to have engaged in fraudulent practices, including market manipulation and insider trading. As a result, the firm faced numerous administrative actions, including fines, censures, and suspending certain employees. The firm was also required to pay restitution to affected investors and disgorge its ill-gotten gains.
Which of the following is a possible remedy for investors who have been harmed by unethical business practices?
A) Restitution compensates investors for losses incurred due to unethical business practices or securities law violations. B) Cease and desist orders are administrative actions issued by regulatory authorities, not remedies for investors. C) Suspensions are temporary prohibitions on individuals or firms from engaging in certain activities or holding certain positions within the financial industry, not remedies for investors. D) Censures are formal reprimands issued by regulatory authorities, not remedies for investors.
A financial advisor is found to have engaged in unethical business practices, such as churning client accounts to generate excessive commissions. The advisor's actions are discovered by a regulatory authority, which issues a cease and desist order, fines the advisor, and suspends their license for some time. The advisor is also required to pay restitution to affected clients.
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Example Series 65 Example Practice Question
- *Scenarios warranting administrative action*: Situations in which a regulatory authority, such as the SEC or a state securities administrator, may take action against a person or entity for violating securities laws or regulations.
- *Fraudulent activities*: An investment adviser intentionally misleads clients about the performance of an investment product. - *Unregistered securities*: A broker-dealer sells unregistered securities to clients, violating the Securities Act of 1933. - *Unethical business practices*: An investment adviser engages in practices such as churning, excessive trading, or recommending unsuitable investments to clients. - *Ignoring red flags*: Failing to recognize or report suspicious activities or potential violations can lead to further harm to clients and potential legal consequences for the individual or firm involved.