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← Series 63: Regulation of Investment Advisers
Series 63 practice questionhardRegistration Requirements for IAs — Administrator's Powers and Exemptions

A state-registered investment adviser headquartered in State A has no office in State B but has 4 clients there, all of whom are wealthy individuals. The State B Administrator believes the adviser is conducting dishonest business in State B. Under the Uniform Securities Act, which of the following actions may the State B Administrator take?

  1. AThe Administrator cannot take any action unless the adviser has more than 5 clients in State B.
  2. BThe Administrator may initiate an enforcement action against the adviser for dishonest conduct, even if the adviser is not required to register in State B.✓ Correct answer
  3. CThe Administrator may only refer the matter to federal authorities, as the adviser is not registered in State B.
  4. DThe Administrator may require the adviser to register in State B regardless of the number of clients.
Explanation

Why B — The Administrator may initiate an enforcement action against the adviser for dishonest conduct, even if the adviser is not required to register in State B.

The USA grants the Administrator authority to enforce antifraud provisions against any person transacting business in the state, regardless of registration status (USA Section 204). The de minimis exemption (fewer than 6 clients in 12 months) exempts from registration, but not from enforcement of antifraud rules. Thus, the Administrator may pursue enforcement for dishonest conduct.

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