Do North Carolina's Administrative Procedure Act rules govern how the Secretary of State's Securities Division handles license actions, hearings, and investigations under the Securities Act?

Plain-English summary

The Securities Division (under the Secretary of State) asked the AG to map the relationship between the 1986 Administrative Procedure Act (APA) in Chapter 150B and the Securities Act in Chapter 78A. The Division wanted to know whether it had to follow APA procedures for things like license denial, suspension, revocation, summary suspensions, investigations, and rulemaking, or whether the Securities Act stood on its own.

The AG's overall answer: the APA applies. The two acts have to be read together as harmonious texts under In re Halifax Paper Co., 259 N.C. 589 (1963). Specific Chapter 78A provisions control where they conflict with general APA rules, but the APA fills in the procedural gaps and provides default structures.

The opinion answered eight questions:

(1) Does Chapter 78A's specificity exempt the Securities Division from Chapter 150B entirely?
No. An agency is exempt from the APA only if it is listed in G.S. 150B-1(d) or has a specific statement of exemption in its enabling legislation. The Securities Division has neither. G.S. 150B-1(c) does, however, cause any APA provisions that cannot be reconciled with Chapter 78A to fail in favor of Chapter 78A.

(2) Is securities dealer/salesman registration an "occupational license" under G.S. 150B-2(4a)?
Yes. G.S. 78A-36 makes it unlawful to do securities business without registration; that fits the APA definition of an occupational license, which confers the right to engage in a field of endeavor regulated by an occupational licensing agency.

(3) Is the Securities Division itself an "occupational licensing agency" under G.S. 150B-2(4b)?
Yes. The principal function of the Division is to regulate securities dealers and salesmen. The APA definition excludes state agencies that issue permits or licenses as "only a part of their regular function," but that exclusion does not apply because regulation of licensees is the Division's core function. The AG read "agency" through G.S. 150B-2(1) and G.S. 143B-3(6) to confirm that a "division" within a department can be an agency for APA purposes.

(4) Does Article 3A of Chapter 150B (occupational licensing agency contested-case procedures) modify Chapter 78A's provisions?
Mostly no. The Securities Act's procedural provisions and Article 3A run mostly in parallel, with Chapter 78A controlling on points of conflict. Specifically:
- G.S. 78A-39(f) procedural conflicts get resolved in 78A's favor under § 150B-1(c). The AG noted that State ex rel. Commissioner of Insurance v. NC Rate Bureau limits delegation: only the Deputy Securities Administrator can hold a contested case hearing under § 78A-45. The Deputy can send the matter to the Office of Administrative Hearings under § 150B-40(e) instead.
- Voluntary withdrawal vs. forced withdrawal of registration (G.S. 78A-39(e)) are treated differently: Article 3A applies to forced withdrawal as a sanction, but the AG found no substantial conflict.
- The "majority of the agency" requirement in G.S. 150B-40(b) yields to G.S. 78A-39(f) when an agency head with final-decision authority conducts the proceeding.
- Quasi-judicial powers may only be delegated to the Deputy Securities Administrator; ministerial functions can be delegated to other staff.
- G.S. 78A-46 investigative powers are like grand-jury powers; Chapter 150B does not apply to those investigations unless they result in a registration action without an opportunity to be heard under § 78A-39.

(5) Are Administrator determinations under Chapter 78A "contested cases" within G.S. 150B-2(2)?
Yes, if they affect activities of a dealer, salesman, or issuer. But they become contested cases only when actually disputed by the affected party.

(6) Do APA findings (under § 150B-3(c)) for summary suspension conflict with Chapter 78A findings (under §§ 78A-29(a) and 78A-39(a))?
No. The Chapter 78A standards are the public health/safety/welfare criteria that satisfy § 150B-3(c). G.S. 78A-39(c) requires the summary suspension order to state its reasons.

(7) If the Securities Division were not an "occupational licensing agency," does Article 3 of the APA modify the Administrator's powers?
The AG marked this question "not applicable" because the answer to question 3 (the Division is an occupational licensing agency) made it moot.

(8) Does the APA apply to the new Investment Advisors Act (Chapter 78C, enacted as Chapter 1098 of the 1987 Session Laws)?
Yes, to the same extent it modifies Chapter 78A. Since § 78C-19 has no specific notice and hearing procedures, the APA fills the gap.

Currency note

This opinion was issued in 1988. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Both the Administrative Procedure Act (Chapter 150B) and the Securities Act (Chapter 78A) have been amended many times since 1988. The Office of Administrative Hearings has expanded its role in many contested cases. The Investment Advisors Act has been updated to track federal law changes. Anyone navigating a current securities enforcement matter should consult current versions of Chapters 78A, 78C, and 150B, and the Office of Administrative Hearings rules, not the 1988 framework.

Common questions

Q: I am a securities salesman and the Division wants to suspend my registration. What process do I get?
A: Under the AG's reading, the Division has to follow the Securities Act's procedural rules in § 78A-39 plus the APA's contested-case framework in Article 3A of Chapter 150B. You are entitled to notice, an opportunity to be heard, and review by the Deputy Securities Administrator (or, if delegated, by the Office of Administrative Hearings). The same framework applies to investment advisors under Chapter 78C.

Q: Can the Division summarily suspend my registration without a hearing first?
A: Yes, in some circumstances. § 78A-29(a) and § 78A-39(a) allow summary action when public health, safety, or welfare requires it, and § 150B-3(c) requires that the agency make that finding and include the reasons in the order. You would get a post-suspension hearing.

Q: Why isn't the Securities Division exempt from the APA when securities regulation is so specialized?
A: The AG's answer is structural: the APA's exemption list (§ 150B-1(d)) is closed, and securities is not on it. Specialization alone is not enough to get out from under the APA. The APA's flexibility (specific statutes prevail over general APA rules in case of conflict) lets the Securities Act do its specialized work without needing a categorical exemption.

Q: Who actually makes the final decision in a contested case before the Division?
A: Only the Deputy Securities Administrator. The AG cited State ex rel. Commissioner of Insurance v. NC Rate Bureau for the rule that the quasi-judicial power to issue final agency decisions cannot be delegated beyond the person the legislature named. The Deputy can send the matter to the Office of Administrative Hearings to hold the actual hearing, but the final decision authority stays at the Deputy level (or above, depending on current law).

Background and statutory framework

The 1986 Administrative Procedure Act in Chapter 150B replaced an older procedural framework with a more comprehensive system covering rulemaking, contested-case adjudication, and judicial review of agency action. The APA distinguishes "occupational licensing agencies" (governed by Article 3A) from other agencies (governed mostly by Article 3). The hook for occupational-licensing treatment is § 150B-2(4b): the agency's principal function is the licensure or regulation of a profession or occupation.

Two structural features of the APA mattered to the Securities Division:

• § 150B-1(c) sets the priority rule: the APA applies to every agency "except to the extent and in the particulars" that any statute specifically provides otherwise. So the APA is the default, and specific statutes override piece by piece.
• § 150B-1(d) is the exemption list of agencies entirely outside the APA. The Securities Division is not on it.

The Securities Act in Chapter 78A had its own procedural and quasi-judicial provisions (especially in §§ 78A-29, 78A-39, 78A-45, 78A-46, 78A-47). The AG read those as more specific provisions that prevail over the general APA framework on points of conflict, but as not displacing the APA entirely.

The Investment Advisors Act in Chapter 78C, enacted in the 1987 session as Chapter 1098, was a new statute at the time. The AG noted that since § 78C-19 had no specific notice and hearing procedures, the APA's default procedures applied.

The role of the Office of Administrative Hearings under § 150B-40(e) is worth noting. When an agency head (or the Deputy Securities Administrator) does not want to conduct a contested-case hearing personally, the matter can be transferred to OAH for the hearing. The final decision still rests with the agency, but the actual fact-finding hearing is run by a neutral administrative law judge.

Citations

• N.C.G.S. § 78A-18 (Administrator's power to deny or revoke certain exemptions from registration)
• N.C.G.S. § 78A-29(a) (stop order denying, suspending, or revoking effectiveness of securities registration)
• N.C.G.S. § 78A-30 (hearing on fairness of a proposed securities transaction)
• N.C.G.S. § 78A-36 (unlawful to do securities business without registration)
• N.C.G.S. § 78A-37 (registration of securities dealers and salesmen)
• N.C.G.S. § 78A-39 (Administrator's denial, suspension, or revocation of registration; procedures)
• N.C.G.S. § 78A-45 (delegation of authority to conduct hearings and issue orders)
• N.C.G.S. § 78A-46(b) (Administrator's power to require testimony and production of evidence)
• N.C.G.S. § 78A-47(b) (Administrator's summary cease-and-desist authority)
• N.C.G.S. § 78C-19 (investment advisor registration sanctions)
• N.C.G.S. § 78C-27(b) (investment advisor investigative powers)
• N.C.G.S. § 78C-28(b) (investment advisor cease-and-desist orders)
• N.C.G.S. § 143B-3(6) (definition of "division")
• N.C.G.S. § 143B-11 (departments may have numerous divisions)
• N.C.G.S. § 150B-1(c) (APA applies except where specific statute provides otherwise)
• N.C.G.S. § 150B-1(d) (list of agencies exempt from APA)
• N.C.G.S. § 150B-2(1) (definition of "agency")
• N.C.G.S. § 150B-2(2) (definition of "contested case")
• N.C.G.S. § 150B-2(4a) (definition of "occupational license")
• N.C.G.S. § 150B-2(4b) (definition of "occupational licensing agency")
• N.C.G.S. § 150B-3(c) (findings for summary suspension)
• N.C.G.S. § 150B-40(b) (majority of agency requirement for contested case hearings)
• N.C.G.S. § 150B-40(e) (transfer of contested cases to OAH)
• Chapter 1098, 1987 Session Laws (Investment Advisors Act)
• In re Halifax Paper Co., 259 N.C. 589, 131 S.E.2d 441 (1963) (statutes to be read as harmonious texts)
• State ex rel. Commissioner of Insurance v. NC Rate Bureau, 61 N.C. App. 261, 300 S.E.2d 586 (1983), cert. denied, 308 N.C. 548, 304 S.E.2d 242 (1983) (limit on delegation of quasi-judicial powers)

Source

• Landing page: https://ncdoj.gov/opinions/relationship-between-administrative-procedures-act-and-securities-act/

Original opinion text

Requested By: Stephen M. Wallis
Deputy Securities Administrator (acting)

(1) Question: G.S. 150B-1(c) states that the Administrative Procedure Act ("APA") applies to every agency except to the extent and in the particulars that any statute makes specific provisions to the contrary. Are the provisions of Chapter 78A stated with the specificity and particularity sufficient to take precedence over any similar provisions of the APA which might conceivably apply to the actions and proceedings addressed by the Securities Act?

Conclusion: No. Chapter G.S. 150B applies to the Secretary of State in the execution of the duties delegated in Chapter 78A. To be entirely exempt from Chapter 150B through G.S. 150B-1(c), the agency must either be listed in G.S. 150B-1(d) or have a specific statement of exemption from Chapter 150B in its enabling legislation. Neither basis for exemption exists for Chapter 78A. G.S. 150B-1(c) does have the additional effect of causing any applicable provisions of Chapter 150B which cannot be reconciled with provisions of Chapter 78A to fail in favor of Chapter 78A.

(2) Question: Does the registration of securities dealers and salesmen by the Securities Division pursuant to G.S. 78A-37 constitute the granting of an "occupational license" within the meaning of G.S. 150B-2(4a)?

Conclusion: Yes. G.S. 78A-36 makes it unlawful to engage in the business of affecting transactions in securities without being registered with the Secretary of State. That registration is encompassed by the definition of "occupational license" at G.S. 150B-2(4a) in that registration confers the right or privilege to engage in a field of endeavor regulated by an occupational licensing agency.

(3) Question: Is the Securities Division an "occupational licensing agency" within the meaning of G.S. 150-B2(4b)?

Conclusion: Yes. The final provision of G.S. 150B-2(4b) is the significant limitation which requires some review: "Occupational licensing agency does not include State agencies or departments which may as only a part of their regular function issue permits or licenses." The critical term is "agency". The definition of "agency" includes Council of State members and divisions within their departments G.S. 150B-2(1). While Chapter 150B does not define the term "division", it is defined at G.S. 143B-3(6) as "the principal subunit of a principal State department." G.S. 143B-11 makes it clear that a department may have numerous divisions. Since the principal function of the Securities Division is the regulation of securities dealers and salesmen, it is an "occupational licensing agency" as that term is defined in G.S. 150B-2(4b).

(4) Question: If the Securities Division is determined to be an "occupational licensing agency" within the meaning of G.S. 150-2(4b), do the provisions of Article 3A of Chapter 150B (procedure for conduct of administrative hearings by occupational licensing agencies) in any way restrict or modify the following provisions of the Securities Act:
(a) G.S. 78A-39(a) and (c) (Administrator's power to institute proceedings to deny, suspend, or revoke the registration of a securities dealer or salesman);
(b) G.S. 78A-39(e) (Administrator's power to revoke, suspend, or impose conditions upon a withdrawal from registration as a securities dealer or salesman);
(c) G.S. 78A-39(f) (procedure for actions by the Administrator pursuant to 78A-39);
(d) G.S. 78A-45(a) (power of the Administrator to delegate authority to conduct hearings and to issue final agency orders and decisions); and
(e) G.S. 78A-46(b) (Administrator's power to require testimony by witnesses and production of evidence in investigations and proceedings)?

Conclusion: No. To the extent possible, the statutes must be read as harmonious texts. In re Halifax Paper Co., 259 NC 589, 131 SE2d 441 (1963). To the extent the two are irreconcilable, G.S. 150B-1(c) causes Chapter 78A to control. Article 3A of Chapter 150B is primarily a set of procedures for the conduct of contested case proceedings by occupational licensing agencies. Most such agencies had and continue to have some statutes establishing procedures. Normally, those statutes are less specific than Article 3A.

(a) The procedural component of G.S. 78A-39 is found in paragraph (f). There is no irreconcilable conflict between it and Article 3A. Since G.S. 78A-45 limits the delegation of the final agency decision power to the Deputy Securities Administrator, no other employee may hold a contested case hearing. State ex rel Commissioner of Insurance v. North Carolina Rate Bureau, 61 NC App 261, 300 SE2d 586, cert. denied, 308 NC 548, 304 SE2d 242 (1983). If the Deputy Securities Administrator elects, he can send the matter to the Office of Administrative Hearings for the conduct of a contested case hearing. G.S. 150B-40(e).

(b) G.S. 78A-39(e) embraces two distinct circumstances: voluntary withdrawal from registration and forced withdrawal of a registration as a sanction. For the second circumstance, Article 3A applies to the extent it is consistent with G.S. 78A-39. No substantial conflicts between the two statutes appear to exist.

(c) The only apparent conflict between G.S. 78-39(f) and G.S. 150B-40(b) is the requirement that a majority of the agency final decision makers conduct the hearing. In this instance, G.S. 78A-39 will prevail. The "majority of the agency" criteria must be read to be satisfied when an agency head, such as the Director of the Securities Division, has final decision authority and conducts the contested use proceeding.

(d) The quasi-judicial powers embodied in Chapter 78A may only be delegated to the Deputy Securities Administrator. Ministerial functions, as opposed to judicial functions, may be delegated to other employees. Ministerial functions include the conduct of hearings other than contested case hearings such as show cause hearings. The procedures and limitations in Chapter 150B apply to contested case proceeding and rulemaking hearings, the conduct of which is a ministerial function. It does not apply to other hearings the Division may conduct under Chapter G.S. 78A.

(e) G.S. 78A-46 is the equivalent of grand jury proceedings. So long as the exercise of these powers does not result in action on a registration without an opportunity to be heard under G.S. 78A-39, it is not a function to which Chapter 150B has any application.

(5) Question: Are determinations made by the Administrator pursuant to his statutory authority considered "contested cases" within the meaning of G.S. 150B-2(2) if such determinations control or restrict the activities of dealers, salesmen, or issuers of securities, and if so, do these determinations become "contested cases" only if the Administrator's action is "disputed" by the subject of such determination?

Conclusion: Yes. Any decision affecting the activities of a dealer, salesman or issuer, such as revocation of a dealer's registration, may be the subject of a "contested case." Those decisions do not become "contested cases" until they are disputed, however.

(6) Question: Are the requirements (in G.S. 150B-3(c)) that an agency make a finding that the "public health, safety, or welfare requires emergency action" prior to a summary suspension of a license or an occupational license, and that the agency incorporate such finding in its order of suspension, in any way in conflict with the findings required to be made by the Administrator by G.S. 78A39(a) prior to denying, suspending, or revoking the registration of a securities dealer or salesman and by G.S. 78-29(a) prior to denying, suspending, or revoking the effectiveness of a securities registration statement?

Conclusion: No. The statutory standards embodied in G.S. 78A-39(a) and 29(a) are the public health, safety or welfare criteria which must be considered prior to and upon which a summary suspension must be founded. G.S. 78A-39(c) requires the summary suspension order to include the reasons for its entry.

(7) Question: If the Securities Division is determined not to be an "occupational licensing agency" within the meaning of G.S. 150-2(4b), do the provisions of Article 3 of the APA (procedure for administrative hearings) modify, restrict, or take precedence over the following actions permitted to the Administrator by the Securities Act: [(a) through (g) listing G.S. 78A-18, 29(a), 30, 39(a), 45, 46(b), 47(b)]?

Conclusion: Not applicable in view of the finding in (3).

(8) Question: Do the provisions of the APA in any way modify, restrict, or supersede the provision of Chapter 1098 of the 1987 Session Laws ("An Act to Regulate Investment Advisors") with specific attention to the following provisions:
(a) the Administrator's power to deny, suspend, or revoke the registration of an investment advisor or an investment advisor representative (G.S. 78C-19);
(b) the Administrator's power to conduct investigations and to require the giving of testimony and production of evidence (G.S. 78C-27(b)); and
(c) the administrator's power to summarily issue cease and desist orders for the purpose of preventing violation of the Investment Advisors Act (G.S. 78C-28(b))?

Conclusion: Since the request was submitted, House Bill 1237 was enacted into law as Chapter 1098. The APA modifies the provision of Chapter 78C to the same extent it modified Chapter 78A.
(a) Since G.S. 78C-19 has no specific provisions regarding notice and hearing, the APA will provide the procedures.
(b) See reply to (4)(e) above.
(c) See reply to (6) above.

Lacy H. Thornburg
Attorney General

Daniel F. McLawhorn
Special Deputy Attorney General