During an inquiry, a state securities Administrator uncovers evidence that a registered agent of a broker-dealer engaged in fraudulent misrepresentations while soliciting state residents to purchase shares of a nationally traded company listed on the New York Stock Exchange (NYSE). Although the stock itself is a federal covered security exempt from state registration, which of the following statements correctly describes the state Administrator's authority under state Blue Sky laws?
- The Administrator retains full statutory authority to investigate the agent's actions and initiate administrative or legal enforcement proceedings regarding the fraudulent conduct.Answer
- BThe Administrator is preempted from taking any action because federal covered security status under NSMIA removes all state-level jurisdiction over associated sales practices.
- CThe Administrator may issue an order revoking the federal covered status of the stock, thereby requiring immediate state qualification registration.
- DThe Administrator must refer the case exclusively to FINRA, as state regulatory enforcement powers apply only to intrastate offerings and unregistered broker-dealers.
Answer
The state Administrator retains full authority to investigate and enforce anti-fraud provisions under state Blue Sky laws, regardless of whether the underlying security is federally covered under NSMIA.
Under the National Securities Markets Improvement Act (NSMIA) of 1996 and state Blue Sky laws, federal covered securities (such as exchange-listed stocks and mutual funds) are exempt from state-level registration. However, NSMIA explicitly preserves state securities Administrators' authority to investigate and enforce anti-fraud provisions against any firm or agent soliciting transactions within their jurisdiction.
Step-by-Step Solution
Key Concept
State Securities Anti-Fraud Authority vs. Federal Covered Securities Preemption
Estimated Time:1m 30s