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← Series 63: Remedies & Administrative Provisions
Series 63 practice questionmediumCivil Liabilities — Seller's Defense

An agent sold an unregistered security to a client. In a civil action by the client, the agent claims he did not know the security was unregistered. This defense is:

  1. AValid — the agent is not liable if he was unaware of the registration status
  2. BValid only if the agent can prove the broker-dealer told him the security was registered
  3. CInvalid — liability for selling unregistered securities is absolute regardless of the seller's knowledge✓ Correct answer
  4. DValid only if the agent has fewer than 2 years of experience in the industry
Explanation

Why C — Invalid — liability for selling unregistered securities is absolute regardless of the seller's knowledge

Under USA Section 410(a), liability for selling unregistered, non-exempt securities is a strict liability provision. The seller's lack of knowledge that the security was unregistered is not a defense. However, Section 410(b) does provide a defense of not knowing for fraud-based claims.

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