It is a goal of the Agency to assist registrants to comply with the requirements of the Texas Securities Act and Board Rules. When areas of noncompliance are identified, the Staff may notify the registrant of the violation and allow the registrant to take corrective action to achieve compliance. When the registrant may not complete the corrective action on its own, it may be necessary for the Agency to require the registrant to ensure compliance through an enforceable agreement with the Securities Commissioner, known as an undertaking.
The mission of the Agency is to protect Texas investors. The Act was amended in September 2019 to authorize the Agency to order a refund of the amount a customer paid to a dealer, agent, investment adviser, or investment adviser representative as a commission or for advisory services.
The Agency may impose administrative fines and suspend a registration. Generally, these sanctions are only sought when aggravating factors are present. Fraudulent conduct or significant aggravating factors may result in a revocation of a registration.
Neither these guidelines nor the penalty matrix prescribes fixed sanctions for a violation or act of misconduct. Rather, they provide direction to Administrative Law Judges and the Securities Commissioner in imposing sanctions consistently and fairly. Agency legal staff, and registrants and their counsel, may use the guidelines and matrix in crafting settlements. The matrix identifies the available sanctions and these guidelines identify factors to be considered in determining the appropriate sanction.
The penalty matrix does not restrict or limit the Agency’s authority to pursue violations that are not addressed in the matrix or the Agency’s authority to pursue other remedies deemed appropriate by the Securities Commissioner.
Penalty Matrix Categories:
ADV Part 2 Related Conduct Engaging in Fraud
Advertising Related Conduct Inequitable Practice
Advisory Contact Related Conduct Insolvency
Advisory Fee Related Conduct Registration Related Conduct
Books and Records Conduct Supervision Related Conduct
Criminal History Violating Order or Undertaking
Principles for Administrative Sanctions
Financial examiners, assistant directors, and directors will collaborate in determining when it is appropriate to use an informal sanction to bring a registrant into compliance with the Act and Board Rules.
When additional sanctions are merited, staff attorneys will collaborate with the Deputy Securities Commissioner in determining which sanction, and the amount and duration of the sanction, is appropriate under the circumstances.
Agency staff will consider these principles in determining disciplinary sanctions:
- Sanctions should empower registrants to better comply with professional standards of conduct, the Act, and Board Rules.
- Sanctions should protect Texas investors by deterring violations and misconduct.
- Sanctions should be tailored to the violations of the Act, Board Rules, and the of misconduct identified.
- Sanctions should be more severe for registrants that repeatedly violate the Act, Board Rules, or engage in conduct inconsistent with industry standards.
- For violations that result in an ill-gotten gain to the registrant that can be quantified, sanctions may include a refund of the amount received relating to the registrant’s violation or misconduct.
- For violations that result in customer losses that can be quantified, sanctions could include an agreement to pay restitution to offset the customer's losses if an order is reached by settlement.
Factors
The following factors should be considered when imposing sanctions for violations of the Act and Board Rules and conduct inconsistent with the standards of the profession of selling securities and rendering investment advice. Although the factors listed below include ones similar to those listed in Board Rule 106.1, relating to Guidelines for the Assessment of Administrative Fines, the factors below apply to the determinations for all available sanctions.
General Factors in Determining Sanctions
- The seriousness, nature, circumstances, extent, and persistence of the conduct or violation;
- The need to deter the registrant or others from engaging in such conduct or committing such violations in the future;
- The harm to other persons resulting either directly or indirectly from the conduct or violation;
- The age, financial status, and level of sophistication of the person harmed;
- The financial resources of the registrant and the size and nature of the registrant’s business; and
- Other relevant, case-specific circumstances.
Mitigating Factors
- The registrant self-reported to the Agency before inspection or other discovery of the violation or conduct by the Agency when such self-reporting was not otherwise required;
- The registrant has cooperated in any inquiry conducted by the Agency about the violation or conduct;
- The registrant implemented corrective measures to prevent future occurrences of the violation or conduct, before inspection or other discovery by the Agency;
- The registrant made voluntary restitution to persons injured by the actions of the registrant, before inspection or other discovery by the Agency; and
- If the firm had controls and procedures in place that were consistent with Board Rules 115.10 and 116.10 at the time the violation or conduct occurred.
Aggravating Factors
- The registrant received prior notice from the Agency or another regulator that the conduct could constitute a violation or may be inconsistent with industry standards;
- A history of previous violations or misconduct by the registrant;
- The violation or misconduct resulted from an intentional act, recklessness, or negligence;
- The registrant attempted to conceal the misconduct or mislead or deceive a customer, employer, or the Agency regarding the violation or misconduct;
- The violation or misconduct resulted in actual or potential financial gain by the registrant; and
- The violation or misconduct resulted in actual or potential customer account losses or other harm.
ADV Part 2 Related Conduct
Conduct |
Regulation |
Sanction(s) |
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Failing to deliver to clients the Form ADV Part 2 disclosure brochure (or similar disclosure statement) not less than 48 hours prior to entering into an investment advisory contract or at the time of entering into such contract if the client has the right to terminate the contract without penalty within five (5) business days of entering into the contract. |
§116.11 of the Board Rules |
Informal, non-public action to bring the individual or entity into compliance with applicable securities laws and regulation, by letter or other correspondence or the imposition of an undertaking. The presence of aggravating factors could result in: |
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Failing to deliver or at least offer the right to receive the Form ADV Part 2A or other disclosure statement. |
Advertising Related Conduct
Conduct |
Regulation |
Sanction(s) |
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Using a senior specific certification or designation in connection with rendering services as an investment adviser that misleadingly indicates or implies that the user has special certification or training in advising or servicing senior citizens or retirees. |
§115.6 of the Board Rules |
Informal, non-public action to bring the individual or entity into compliance with applicable securities laws and regulation, by letter or other correspondence or the imposition of an undertaking. The presence of aggravating factors could result in: an administrative fine up to $20,000 per violation; and/or a suspension of a registration. Significant aggravating factors could result in the revocation of a registration. |
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Including prohibited items in an advertisement by an investment adviser |
§116.15 of the Board Rules
§116.15 of the Board Rules
§116.15 of the Board Rules |
Informal, non-public action to bring the individual or entity into compliance with applicable securities laws and regulation, by letter or other correspondence or the imposition of an undertaking. The presence of aggravating factors could result in: an administrative fine up to $20,000 per violation; and/or a suspension of a registration. Significant aggravating factors could result in a revocation of a registration. |
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Advertising by an investment adviser of its past performance without including necessary disclosures to avoid any unwanted inference |
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Advertising by an investment adviser of its gross performance without including performance net of fees and expenses in an equally prominent manner |
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Using the fact of registration in an advertisement in connection with the sales of securities or rendering of services as an investment adviser. |
§20 of the Texas Securities Act |
Informal, non-public action to bring the individual or entity into compliance with applicable securities laws and regulation, by letter or other correspondence or the imposition of an undertaking. The presence of aggravating factors could result in: an administrative fine up to $20,000 per violation; and/or |
Advisory Contract Related Conduct
Conduct |
Regulation |
Sanction(s) |
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Failing to include required language in the advisory contract |
§116.12(a) of the Board Rules |
Informal, non-public action to bring the individual or entity into compliance with applicable securities laws and regulation, by letter or other correspondence or the imposition of an undertaking. The presence of aggravating factors could result in: an administrative fine up to $5,000 per violation; and/or |
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Failing to include a non-assignment clause in the advisory contract |
§116.12(c) of the Board Rules |
Advisory Fee Related Conduct
Conduct |
Regulation |
Sanction(s) |
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Assessing an investment advisory fee in excess of 3% of assets under management without disclosing that such fee is in excess of industry norms. |
§116.13 of the Board Rules |
A refund of investment advisory fees assessed by the investment adviser in excess of 3%. The presence of aggravating factors adviser could result in: The presence of significant aggravating factors could result in a revocation of a registration. |
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Assessing a performance fee to a client that does not meet the definition of "qualified client" |
§116.13 of the Board Rules |
A refund of investment advisory fees assessed by the investment adviser for the accounts of customers that were not "qualified clients". The presence of aggravating factors adviser could result in: The presence of significant aggravating factors could result in a revocation of a registration. |
Criminal History
Conduct |
Regulation |
Sanction(s) |
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An investment adviser or investment adviser representative has been convicted of any felony |
§14.A(1) of the Texas Securities Act |
The factors required by §116.6 of the Board Rules must be considered. The Agency may deny or revoke a registration if appropriate. |
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An investment adviser or investment adviser representative has been convicted of any misdemeanor which directly relates to the person's securities-related duties and responsibilities |
§14.A(2) of the Texas Securities Act §116.6 of the Board Rules |
The factors required by §116.6 of the Board Rules must be considered. The Agency may deny or revoke a registration if appropriate. |
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A dealer or agent has been convicted of any felony |
§14.A(1) of the Texas Securities Act §115.6 of the Board Rules |
The factors required by §115.6 of the Board Rules must be considered. The Agency may deny or revoke a registration if appropriate. |
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A dealer or agent has been convicted of any misdemeanor which directly relates to the person's securities-related duties and responsibilities |
§14.A(2) of the Texas Securities Act §115.6 of the Board Rules |
The factors required by §115.6 of the Board Rules must be considered. The Agency may deny or revoke a registration if appropriate. |
Custody Related Conduct
Conduct |
Regulation |
Sanction(s) |
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Having custody of client funds or securities without implementing required safeguards |
§116.7 of the Board Rules |
Informal, non-public action to bring the individual or entity into compliance with applicable securities laws and regulation, by letter or other correspondence or the imposition of an undertaking. The presence of aggravating factors could result in: Significant aggravating factors and/or refusal to comply with the custody rule could result in a revocation of a registration. |
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Engaging in Fraud |
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Conduct |
Regulation |
Sanction(s) |
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An investment adviser or investment adviser representative has engaged in any fraudulent business practice |
§14.A(3) of the Texas Securities Act |
A refund of the amount the investment adviser and/or investment adviser representative received as a result of the fraudulent business practice; and a revocation of a registration. In an order reached by settlement, the investment adviser or representative may agree to pay restitution to customers to offset the customer's losses. |
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A dealer or agent has engaged in any fraudulent business practice |
A refund of the amount the dealer and/or agent received as a result of the fraudulent business practice; and a revocation of a registration. In an order reached by settlement, the dealer or agent may agree to pay restitution to customers to offset the customer's losses. |
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An investment adviser or investment adviser representative has engaged in fraud or a fraudulent practice in connection with the rendering of services as an investment adviser |
§23-1 of the Texas Securities Act
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A refund of the amount the investment adviser and/or investment adviser representative received as a result of the fraud or fraudulent practice in connection with the rendering of services as an investment adviser; and The presence of aggravating factors could also result in an administrative fine of $20,000 per violation or the gross amount of any economic benefit gained by the investment adviser and/or investment adviser representative, plus an additional amount of $250,000 if the act or practice was committed against a person 65 years of age or older. In an order reached by settlement, the investment adviser or representative may agree to pay restitution to customers to offset the customer's losses. |
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A dealer or agent has engaged in fraud or a fraudulent practice in connection with the offer or sale of a security |
A refund of the amount the dealer and/or agent received as a result of the fraud or fraudulent practice in connection with the offer or sale of a security; and a revocation of a registration. The presence of aggravating factors could also result in an administrative fine of $20,000 per violation or the gross amount of any economic benefit gained by the dealer and/or agent, plus an additional amount of $250,000 if the act or practice was committed against a person 65 years of age or older. In an order reached by settlement, the dealer or agent may agree to pay restitution to customers to offset the customer's losses. |
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An investment adviser and/or investment adviser representative has made a material misrepresentation to the Securities Commissioner in connection with information deemed necessary by the Securities Commissioner to determine an investment adviser or investment adviser representative's business repute or qualifications |
§14.A(7) of the Texas Securities Act |
A denial or revocation of a registration. |
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A dealer or agent has made a material misrepresentation to the Securities Commissioner in connection with information deemed necessary by the Securities Commissioner to determine a dealer or agent's business repute or qualifications |
A denial or revocation of a registration. |
Engaging In An Inequitable Practice
Conduct |
Regulation |
Sanction(s) |
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An investment adviser or investment adviser representative has engaged in an inequitable practice in rendering services as an investment adviser |
§14.A(3) of the Texas Securities Act
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Informal, non-public action to bring the individual or entity into compliance with applicable securities laws and regulation, by letter or other correspondence or the imposition of an undertaking. A refund of the amount the investment adviser or investment adviser representative received or customer lost as a result of the inequitable practice. The presence of aggravating factors could also result in a suspension of a registration. In an order reached by settlement, the investment adviser or representative may agree to pay restitution to customers to offset the customer's losses. |
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A dealer or agent has engaged in an inequitable practice in the sale of securities. |
Informal, non-public action to bring the individual or entity into compliance with applicable securities laws and regulation, by letter or other correspondence or the imposition of an undertaking. A refund of the amount the dealer received or customer lost as a result of the inequitable practice. The presence of aggravating factors could also result in a suspension of a registration. In an order reached by settlement, the dealer or agent may agree to pay restitution to customers to offset the customer's losses. |
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Insolvency
Conduct |
Regulation |
Sanction(s) |
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Being insolvent |
§14.A(4) of the Texas Securities Act |
Denial or revocation of a registration. |
Registration Related Conduct
Conduct |
Regulation |
Sanction(s) |
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Selling securities without first being registered as a dealer or as an agent of a registered dealer |
§12.A of the Texas Securities Act |
Refund of amount earned as commissions during unregistered period. The presence of aggravating factors could also result in an administrative fine up to $20,000 per violation. |
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Rendering services as an investment adviser without first being registered as an investment adviser or as an investment adviser representative of a registered investment adviser |
§12.B of the Texas Securities Act |
Administrative fine up to $20,000 per violation. The presence of aggravating factors could result in the denial of a registration. |
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Rendering services as an investment adviser through an unregistered investment adviser representative |
§14.A(5)(b) of the Texas Securities Act |
Informal, non-public action to bring the individual or entity into compliance with applicable securities laws and regulation, by letter or other correspondence or the imposition of an undertaking. The presence of aggravating factors could result in a suspension of a registration. |
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Selling securities for a dealer, issuer, or controlling person with knowledge that such dealer, issuer, or controlling person has not complied with the provisions of this Act; |
§14.A(5)(c) of the Texas Securities Act |
Refund of amount earned as commissions during unregistered period. Informal, non-public action to bring the individual or entity into compliance with applicable securities laws and regulation, by letter or other correspondence or the imposition of an undertaking. The presence of aggravating factors could result in a suspension of a registration. |
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Rendering services as an investment adviser representative for an investment adviser for whom the representative is not reigstered to represent as required |
§14.A(5)(d) of the Texas Securities Act |
Informal, non-public action to bring the individual or entity into compliance with applicable securities laws and regulation, by letter or other correspondence or the imposition of an undertaking. The presence of aggravating factors could result in a denial of a registration. |
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Failure to report required information to Securities Commissioner within thirty (30) days |
§115.9 of the Board Rules |
Informal, non-public action to bring the individual or entity into compliance with applicable securities laws and regulation, by letter or other correspondence or the imposition of an undertaking. The presence of aggravating factors could result in: |
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Failure to post registration certificate |
§21 of the Texas Securities Act |
Informal, non-public action to bring the individual or entity into compliance with applicable securities laws and regulation, by letter or other correspondence or the imposition of an undertaking. The presence of aggravating factors could result in: |
Supervision Related Conduct
Conduct |
Regulation |
Sanction(s) |
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Failing to establish, maintain, and enforce a system to supervise the activities of agents that is reasonably designed to achieve compliance with the Texas Securities Act, the Board Rules, and all applicable securities laws and regulations. Failing to establish, maintain, and enforce written procedures to supervise the activities of agents that is reasonably designed to achieve compliance with the Texas Securities Act, the Board Rules, and all applicable securities laws and regulations. |
§115.10(a) of the Board Rules
§115.10(b) of the Board Rules |
Informal, non-public action to bring the individual or entity into compliance with applicable securities laws and regulation, by letter or other correspondence or the imposition of an undertaking. The presence of aggravating factors could result in: an administrative fine up to $20,000 per violation or the gross amount of any economic benefit gained by the dealer as a result of the underlying misconduct for which the dealer failed to supervise. Significant aggravating factors could result in a suspension of a registration. In an order reached by settlement, the dealer or agent may agree to pay restitution to customers to offset the customer's losses. |
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Failing to establish, maintain, and enforce a system to supervise the activities of investment adviser representatives that is reasonably designed to achieve compliance with the Texas Securities Act, the Board Rules, and all applicable securities laws and regulations |
§116.10 of the Board Rules |
Informal, non-public action to bring the individual or entity into compliance with applicable securities laws and regulation, by letter or other correspondence or the imposition of an undertaking. The presence of aggravating factors could result in: an administrative fine up to $20,000 per violation or the gross amount of any economic benefit gained by the investment adviser as a result of the underlying misconduct for which the investment adviser failed to supervise; and/or In an order reached by settlement, the investment adviser or representative may agree to pay restitution to customers to offset the customer's losses. |
Violating An Order Or Undertaking
Conduct |
Regulation |
Sanction(s) |
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An investment adviser and/or investment adviser representative has violated any provision of any Order issued by the Securities Commissioner |
§14.A(11) of the Texas Securities Act §23-1 of the Texas Securities Act |
Administrative fine up to $20,000 per violation; and/or |
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A dealer and/or agent has violated any provision of any Order issued by the Securities Commissioner |
Administrative fine up to $20,000 per violation; and/or |
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An investment adviser and/or investment adviser representative has violated any provision of any undertaking with the Securities Commissioner |
§14.A(3) of the Texas Securities Act |
A suspension of a registration. The presence of significant aggravating factors could also result in a revocation of a registration. |
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A dealer and/or agent has violated any provision of any Undertaking with the Securities Commissioner |
A suspension of a registration. |