North Dakota Administrative Code Title 73 - Securities Commissioner
North Dakota Administrative Code (NDAC) Title 73 — Securities Commissioner
1. Overview
Title 73 of the North Dakota Administrative Code governs the rules, regulations, and procedures administered by the North Dakota Securities Commissioner. The Securities Commissioner is responsible for enforcing the North Dakota Securities Act, regulating securities offerings and sales, and protecting investors from fraud and unfair practices.
Title 73 includes regulations on:
Registration of securities and securities dealers.
Licensing of broker-dealers, agents, investment advisers, and investment adviser representatives.
Enforcement actions, investigations, and penalties.
Disclosure requirements and exemptions.
Handling of complaints and disciplinary proceedings.
The overarching goal is to ensure fair and transparent securities markets in North Dakota and to protect the investing public.
2. Statutory Authority
The authority for the Securities Commissioner flows from the North Dakota Century Code (NDCC) Chapter 10-04, the North Dakota Securities Act. This statute empowers the Commissioner to:
Register securities offerings and dealers.
License agents and investment advisers.
Conduct investigations into violations of securities laws.
Initiate enforcement actions, including cease and desist orders and administrative hearings.
Impose fines and revoke licenses.
3. Key Provisions in Title 73
A. Registration of Securities
All securities offered or sold in North Dakota must be registered unless an exemption applies.
The Code defines procedures for filing registration statements, including disclosure documents like prospectuses.
The Commissioner reviews filings to ensure adequacy of information and compliance with the law.
Registration can be denied, suspended, or revoked for false statements, omissions, or fraud.
B. Registration and Licensing of Dealers and Agents
Broker-dealers and agents must register with the Commissioner before conducting business.
Requirements include filing application forms, background checks, fingerprinting, and payment of fees.
Continuing education and renewal of licenses are mandatory.
Agents and dealers must adhere to ethical and professional standards.
C. Exemptions
Title 73 outlines various exemptions from registration for securities and transactions, such as private placements, intrastate offerings, and certain nonprofit issues.
The Commissioner has authority to grant or deny exemption claims.
D. Enforcement and Penalties
The Commissioner can investigate suspected violations based on complaints or on the Commissioner’s initiative.
Investigations may involve subpoenas, testimony under oath, and document requests.
Administrative hearings are conducted to adjudicate violations.
Penalties can include cease and desist orders, license revocation, fines, and referral for criminal prosecution.
E. Fiduciary Duties and Conduct Standards
Registered investment advisers and agents owe fiduciary duties to clients, including duties of disclosure, loyalty, and care.
Title 73 includes rules prohibiting fraud, manipulation, misrepresentation, and other unfair practices.
4. Legal Principles and Case Law
Several legal principles underpin Title 73 and the Commissioner’s authority. Below are some general principles and case law from North Dakota courts related to securities regulation and administrative enforcement:
A. Broad Authority of the Securities Commissioner
Courts have consistently upheld the Commissioner’s broad statutory authority to regulate securities in the public interest.
The Commissioner’s decisions, including denials of registration or license suspensions, are subject to review but generally upheld if supported by substantial evidence.
B. Due Process in Administrative Enforcement
In administrative enforcement actions, licensees or registrants are entitled to due process, including notice of charges, opportunity to be heard, and the right to appeal.
For example, in a license revocation case, the North Dakota Supreme Court emphasized that the Securities Commissioner must provide a fair hearing process before taking adverse action.
C. Fraud and Misrepresentation
Courts uphold strict enforcement against fraud in securities transactions.
In cases where defendants engaged in deceptive practices or withheld material information, courts have affirmed penalties imposed by the Commissioner.
The “materiality” of information and intent to deceive are key factors.
D. Registration and Exemption Disputes
Disputes about whether a security or transaction qualifies for exemption are common.
Courts defer to the Commissioner’s expertise but require that exemptions be narrowly construed to protect investors.
5. Illustrative Case Examples
1. North Dakota Securities Commissioner v. ABC Investment Firm (Hypothetical)
The Commissioner revoked ABC’s broker-dealer license after finding multiple violations, including failure to disclose conflicts of interest and misrepresenting investment risks.
ABC challenged the revocation, arguing insufficient evidence.
The North Dakota Supreme Court upheld the revocation, stating the Commissioner’s findings were supported by substantial evidence and the process met due process requirements.
2. Investor v. DEF Securities Agent (Hypothetical)
An investor sued DEF agent after losing money on an unregistered security sold without proper disclosure.
The Commissioner’s investigation found the agent violated ND securities law.
The court supported enforcement actions, highlighting the agent’s fiduciary duty and the importance of truthful disclosure.
3. Exemption Denial Case
A company claimed an exemption for a private placement but the Commissioner denied it, citing failure to meet requirements.
The company appealed.
The court upheld the Commissioner’s decision, explaining that exemptions are narrowly applied and the burden is on the issuer to prove eligibility.
6. Practical Implications
Broker-dealers, agents, and investment advisers operating in North Dakota must strictly comply with registration and disclosure requirements.
Failure to comply can result in severe administrative and legal consequences.
Investors should be aware of protections under the North Dakota Securities Act and report suspicious conduct.
The Securities Commissioner has strong enforcement powers, but actions must be fair and supported by evidence.
7. Summary
NDAC Title 73 establishes a regulatory framework to oversee securities markets in North Dakota through the Securities Commissioner. It governs registration, licensing, exemptions, and enforcement aimed at protecting investors from fraud and misconduct. Courts generally uphold the Commissioner’s authority and decisions when supported by substantial evidence and due process. The Title balances regulatory oversight with procedural protections for licensees and market participants.
RELATED Blog
0 comments