What is a Broker-Dealer? - Davis Polk & Wardwell

What Is a Broker-Dealer? § 1A:8.2
the SEC may transmit such evidence of securities laws violations to
the Attorney General, who may, in his discretion, institute the
necessary criminal proceedings under the Exchange Act. 469
In addition to SEC actions, an unregistered broker-dealer may also
be subject to state enforcement actions under respective state blue sky
laws. As discussed in section 1A:1, most states have their own
registration requirements. Under both the 1956 Uniform Act and
the 2002 Uniform Act, as adopted by most states, a state regulator can
initiate a civil action in court for a temporary or permanent injunction
to enjoin a person’s act in violation of the registration requirement. 470
The state regulator may also, under the 2002 Uniform Act, issue a
cease-and-desist order or impose civil penalties on the unregistered
broker-dealer. 471 Under the 1956 Uniform Act, the state regulator can
refer evidence to the attorney general or appropriate district attorney
who may institute criminal proceedings against the unregistered
broker-dealer. 472 States have brought numerous enforcement actions
against unregistered broker-dealers. 473 In cases where fraud is involved,
states have brought criminal charges against such brokerdealers.
474
§ 1A:8.2 Private Actions—Exchange Act § 29(b)
Exchange Act § 29(b) provides that contracts made in violation of
any provision of the Exchange Act or any rule thereunder are “void”
(though, in reality, courts treat such contracts as being voidable rather
than void ab initio). 475 The Supreme Court has recognized a private
469. Exchange Act § 21(d)(1).
470. 1956 Act § 408; 2002 Act § 603.
471. 2002 Uniform Act § 604. See California Desist and Refrain Order against
Markow Tsai on May 15, 1998; Alabama Cease and Desist Order against
Markow Tsai on March 3, 2000.
472. 1956 Act § 409. See, e.g., Kahn v. State, 493 N.E.2d 790, 1986 Ind. App.
LEXIS 2616 (1986).
473. See, e.g., State of W. Va. v. Fairchild; State of W. Va. v. Roger, 171 W. Va.
137, 298 S.E.2d 110 (Nov. 18, 1982); People of the State of Colo. v. Milne,
690 P.2d 829 (Nov. 5, 1984).
474. See, e.g., State v. Milne, 690 P.2d 829 (Nov. 5, 1984).
475. Exchange Act § 29(b). While the language of the statute provides that such
contracts “shall be void,” courts have interpreted the statute to mean that
such contracts are void as regards the rights of the violating party and
“voidable” at the option of the innocent injured party. See Eastside Church
of Christ v. Nat’l Plan, Inc., 391 F.2d 357 (5th Cir.), cert. denied, 393 U.S.
913 (1968); Schneberger v. Wheeler, 859 F.2d 1477, 1481–82 (11th Cir.,
1988), cert. denied sub nom. Schneberger v. United States Trust Co. of N.Y.,
490 U.S. 1091 (discussing Mills v. Electric Auto-Lite Co. 396 U.S. 375).
(Broker-Dealer Reg., Rel. #9, 9/10)
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