Civil Liability Under The Uniform Securities Act

Thaddea Poyntz, an agent, sold unregistered nonexempt securities because she genuinely and carelessly misread her firm's product list. There is no evidence she intended to do anything improper. Regarding the consequences of that sale under the Uniform Securities Act, which statement is accurate?

1. A.Both criminal and civil liability require proof that she acted willfully.Only the criminal track requires willfulness. Civil liability for a registration violation does not.
2. B.Neither criminal nor civil liability requires proof that she acted willfully.Criminal conviction under the Act does require a willful violation.
3. C.Civil liability requires willfulness, but criminal liability does not.This reverses the rule.
4. D.Criminal liability requires a willful violation, but the buyer's civil remedy does not.Correct. Willfulness gates the criminal track only; the buyer's statutory remedy for an unregistered sale is available regardless of intent.

Why: Willfulness is an element of CRIMINAL liability under the Act: a person may be fined and imprisoned only on conviction of a WILLFUL violation, and even then "willful" means she intended to do the act, not that she intended to break the law. Civil liability carries no such element. A buyer who was sold an unregistered nonexempt security has the statutory remedy regardless of the seller's state of mind. So Poyntz's honest carelessness is a real obstacle to a criminal case and no obstacle at all to the customer's civil claim.

Tavis Orrell sells Marguerite Sable 500 shares of a security that is properly registered and effective in State R. Orrell himself has never been registered as an agent in State R and no exclusion applies to him. The shares fall sharply and Sable sues under the Uniform Securities Act. Her civil remedy is:

1. A.unavailable, because the security itself was lawfully registered and effective in State RRegistration of the security satisfies only one of the Act's two registration requirements. The person selling must also be registered.
2. B.unavailable unless she proves that Orrell defrauded herFraud is a separate prong. A sale in violation of the registration provisions is actionable on its own.
3. C.available, because the sale was made in violation of the Act's registration provisions governing personsCorrect. Selling as an unregistered agent is a registration violation, and the buyer gets the statutory rescission remedy.
4. D.limited to filing a complaint with the Administrator, since private suits lie only for fraudThe Act creates a private right of action for registration violations, not merely for fraud.

Why: The civil liability section reaches any person who offers or sells a security "in violation of" the Act's registration provisions, and those provisions cover the registration of PERSONS as well as of securities. A sale made by an unregistered agent is such a violation, so the buyer has the statutory remedy even though the security itself was lawfully registered. She may recover the consideration paid plus interest at the rate the Administrator specifies, less any income received on the security, on tender of the security back to the seller. No showing of fraud is required.

Perpetua Vane bought stock from Kettleby Rowe Securities in a sale that violated the Uniform Securities Act. Her lawyer tells her she has a claim under the Act's civil liability section, and separately notes that the same conduct would support a common-law fraud claim in State M, which permits a broader measure of damages. Under the Uniform Securities Act, the existence of the statutory remedy:

1. A.bars the common-law claim, because a detailed statutory remedy is the exclusive route for a securities purchaserThe Act contains no exclusivity clause. It says the opposite: its remedies are in addition to any others existing at law or in equity.
2. B.does not displace the common-law claim, because the rights and remedies under the Act are in addition to any others that exist at law or in equityCorrect. The Act's cumulative-remedies provision preserves every other right the investor has; the statutory action supplements common-law fraud, contract and agency claims.
3. C.suspends the common-law claim until the statutory action has been finally decidedNo such stay exists in the Act. Nothing sequences the two theories.
4. D.requires her to elect between the statutory and the common-law claim before filing suitThe Act imposes no election of remedies. The bar on double recovery operates at judgment, not at filing, and it does not force her to abandon a theory in advance.

Why: The Uniform Securities Act states that the rights and remedies it creates are IN ADDITION TO any other rights or remedies that may exist at law or in equity. The statute supplements the common law; it does not replace it. Vane may plead the statutory claim and a common-law fraud claim arising from the same sale. The Act imposes no election of remedies at the pleading stage and does not stay one claim pending the other. What she cannot do is collect twice for the same loss, but that is an ordinary rule against double recovery, not a limit the Act imposes on which theories she may advance.

The State P Administrator sues Merrowfield Ventures in state court, alleging that it raised $6 million from residents through an offering riddled with material misstatements. The Administrator asks the court to stop the offering and, in addition, to make the promoters return what investors paid and surrender the profits they took out. Under the Uniform Securities Act, the court:

1. A.may grant the injunction only, because monetary relief under the Act is available exclusively in private suits brought by the purchasersA court in an Administrator's action may order restitution and disgorgement; the private remedy is additional, not exclusive.
2. B.may grant the injunction and, on a proper showing, also order restitution to the investors and disgorgement of the promoters' gainsCorrect. Courts hearing an Administrator's enforcement action may add rescission, restitution, disgorgement, and a receivership to injunctive relief.
3. C.may order restitution only after each investor has separately intervened as a named plaintiffNo such requirement exists. The Administrator sues in the public interest and the court may order restitution to injured investors generally.
4. D.must refer the monetary claims to the Administrator for determination in an administrative hearingThe court hearing the action grants the relief; it does not remit money claims to the agency.

Why: When the Administrator brings an enforcement action in court, the relief available is not limited to an injunction. On a proper showing the court may also order rescission of the transactions, restitution to the injured investors, and disgorgement of amounts the wrongdoer obtained, and it may appoint a receiver or conservator over the defendant's assets. That is what makes a court action worth bringing: the Administrator's own administrative orders can stop conduct and strip registrations, but a court can move money back to investors.