Cancellation Of Registration

On Tuesday, March 12, an agent at Halloran Securities learns from a customer's daughter that the customer died the night before. A good-till-cancelled order the customer entered in February is still open, and the agent lets it execute on March 13 because the price looks favorable to the estate. Under NASAA standards, the agent's conduct is:

1. A.Prohibited, because on learning of the death the agent must cancel all open orders and freeze the account until proper estate documents are producedCorrect. Death revokes the customer's trading authority; open orders must be cancelled and the account restricted until the executor's authority is documented.
2. B.Permitted, because the customer validly entered the order while alive and never cancelled itThis confuses the validity of the order at entry with the agent's authority at execution. Authority ends at death regardless of when the order was placed.
3. C.Permitted, because the execution price benefited the estateProfitability never legitimizes an unauthorized trade. The exam consistently rejects good-outcome reasoning.
4. D.Prohibited only if the executed trade produced a loss for the estateThe violation is complete on execution. Whether the estate gained or lost affects damages, not whether a violation occurred.

Why: On learning of a customer's death, the agent must immediately cancel all open orders and freeze the account pending receipt of proper estate documentation. The customer's authority to trade ended at death, so no order the customer entered can lawfully be executed afterward. A favorable outcome does not cure an unauthorized execution.

A registered agent dies during the registration year. The Administrator's appropriate action regarding the registration is:

1. A.Summary suspension pending investigationWrong. There is nothing to investigate; the registrant is deceased.
2. B.A cease and desist orderWrong. Cease and desist addresses ongoing or threatened violations.
3. C.Cancellation of the registrationCorrect. Death triggers nonpunitive cancellation.
4. D.Revocation of the registrationWrong. Revocation is a sanction for violations, which is not the case here.

Why: When a registrant dies, no longer exists, cannot be located, or is adjudicated mentally incompetent, the Administrator cancels the registration. Cancellation involves no findings of wrongdoing, unlike denial, suspension, or revocation. Citation: Uniform Securities Act Sec. 204(d). Takeaway: cancellation = administrative housekeeping, not a sanction.

The State H Administrator reviews three files. Sparrowgate Advisers dissolved eighteen months ago and no longer exists. Agent Nell Ordway has not been located after a reasonable search; her mail is returned and her firm has lost contact with her. Agent Piers Lund has been found, after notice and a hearing, to have made material misrepresentations to four customers. What action fits each file?

1. A.Cancellation for Sparrowgate; revocation for Ordway and LundInability to locate a registrant after reasonable search is an express cancellation ground, not a disciplinary one.
2. B.Cancellation for Sparrowgate and for Ordway; revocation for LundCorrect. The first two files present the classic cancellation grounds, and only Lund's involves a finding of misconduct.
3. C.Revocation for all three, since each registration must be terminated by orderAll three are ended by order, but revocation implies misconduct. Using it for a dissolved firm or an unlocatable agent brands them without any finding.
4. D.Cancellation for all three, because the Administrator may not revoke a registration that the registrant is not defendingLund received notice and a hearing. Nothing limits revocation to contested matters.

Why: The Act distinguishes housekeeping from discipline. Cancellation is the non-punitive tool: the Administrator may by order cancel a registration or application when the registrant no longer exists, has ceased doing business, cannot be located after a reasonable search, or is subject to an adjudication of mental incompetence. It carries no finding of wrongdoing and no hearing is needed. Revocation is disciplinary, requires an enumerated ground plus a public interest finding, and may be entered only after notice, an opportunity for hearing and written findings - which is what the Lund file supports.

A registered agent is adjudicated mentally incompetent by a court. With respect to the agent's registration, the Administrator should:

1. A.Revoke the registration after notice and hearingRevocation is a sanction for enumerated misconduct in the public interest; incompetence is not misconduct.
2. B.Suspend the registration until competence is restoredSuspension is likewise disciplinary; the statute prescribes cancellation for incompetence, with re-registration possible later.
3. C.Allow the registration to continue until its December 31 expirationWaiting out the year leaves an incompetent person registered; cancellation addresses the status immediately.
4. D.Cancel the registration, a nonpunitive action requiring no hearing on misconductCorrect. Adjudicated incompetence is an enumerated basis for cancellation — an administrative housekeeping measure, not a sanction.

Why: When a registrant is deceased, adjudicated mentally incompetent, cannot be located, or has ceased doing business, the Administrator CANCELS the registration. Cancellation is nonpunitive and requires no finding of wrongdoing, unlike denial, suspension, or revocation. Review: Cancellation vs. revocation.