AD Banker- Comp Exam - Series 63 Flashcards

Question

MAS Specialty Consultants routinely searches out companies open to discussions about either acquiring another company or being acquired by another company. The firm’s business model is such that, for a small fee, they have the opening discussions with the company and then refer the company to another firm. From this point, they accept a referral fee based on the size of the company they’ve had discussions with and have now handed over. After payment of the referral fee, they are not a part of any ensuing discussions nor the acquisition, if it ultimately occurs. MAS Specialty Consultants is: A Considered a finder but not a broker-dealer B Considered a finder and, therefore, a broker-dealer C Not considered a finder or a broker-dealer unless an acquisition ultimately occurs, and then they are considered a broker-dealer D Not considered a finder because they are simply charging fees for their services and not compensated based on the purchase or sale of securities

Answer 1

A Considered a finder but not a broker-dealer Collecting fees to have discussions and make referrals alone does not put the firm in the position of being defined as a broker-dealer. The compensation would need to be based on the ultimate purchase or sale of a company’s securities. If the M&A professional is being compensated on the closing of the deal, they are defined as broker-dealers.

Answer 2

B Recommending an aggressive investment strategy It is an investment adviser representative or agent's job to give recommendations to their customers. As long as this is done in an honest, ethical way and it is suitable for the customer, it is not unlawful or manipulative. Wash trades, phantom quotes, and creating misleading appearances in the market are all considered manipulative under the Act.

Answer 3

B 60 calendar days When properly filed in accordance with the USA (within 10 business days of a transaction with the client in the new state, or the discovery by the agent of the client’s change in residence, whichever is later), the application allows business to continue uninterrupted for a grace period of 60 calendar days.

Answer 4

C Charging wrap fees if registered as a BD only Wrap accounts are considered an investment advisory product, and a person must be registered as an IA to charge wrap fees.

Answer 5

C The firm must notify each client of the change within a reasonable time period IA firms must notify a customer of any change within the partnership within a reasonable time period. The firm, however, may not assign a customer's contract without consent. If this is a majority partnership change, it would be stated in the question and would require prior written customer consent as it is considered assignment.

Answer 6

C I and III An investment adviser representative is any partner, officer, director, employee, or associate of an investment adviser that is registered, or required to be registered, under the USA; or one who has a place of business in the state and is employed by or associated with a federal covered adviser. An IAR is anyone who: * Makes recommendations or otherwise renders advice regarding securities * Manages accounts or portfolios of clients * Determines which recommendations or advice regarding securities should be given * Solicits, offers or negotiates for the sale of, or sells, investment advisory services * Supervises employees who engage in any of these activities

Answer 7

A Registration by qualification Qualification must be used for securities that will not register with the SEC but are required to register with the state, or for a security that is registered in only one state (intrastate security).

Answer 8

A 5 years total, with the first 2 years in the adviser's principal office An investment adviser's records must be kept readily accessible for at least 5 years. The first 2 years they must be kept on file in the investment adviser's principal office.

Answer 9

C The adviser solicits to more than 5 non-institutional clients in a 12-month period Investment advisers who are registered in another state but have no place of business in this state, are exempt from registration in this state if securities transactions are limited to 5 or fewer noninstitutional clients in a 12-month period (de minimis exemption). They are also exempt if their only clients in the state are institutional investors or companies, such as other investment advisers, banks, or broker-dealers (institutional exemption). An IA who conducts business with more than 5 retail customers in the state must be registered in the state as an investment adviser.

Answer 10

B I, II, and III The State Securities Administrator has jurisdiction over both offers and sales within the Administrator's state. A total of 3 Administrators can have jurisdiction over a sale, including the Administrator in the state where the offer originated, the Administrator in the state where the offer was directed to, and the Administrator in the state where the sale was done. The “deal was closed” is another way to say the transaction occurred in the state.

Answer 11

B Referencing material nonpublic information It is allowable to reference public information. However, an agent cannot reference any material, nonpublic information regarding the issuer

Answer 12

D The IARs registrations are inactive until they are employed with another IA firm If an investment adviser loses its registration, the registration for each of the IARs for that firm becomes inactive until the IAR begins working for another investment adviser in the state.

Answer 13

C It discloses that the contract can be assigned at anytime The contract must state that the contract cannot be assigned without the client’s written consent. The IA must have the investment advisory contract in writing, the contract must disclose the length of the contract, and it must disclose the fees and how they are calculated.

Answer 14

D Within 10 business days of a transaction with the client in the new state, or the discovery by the agent of the client’s change in residence, whichever is later In order to qualify for the 60-day grace period, an application to register in the state in which the client is now a resident must be filed within 10 business days of a transaction with the client in the new state, or the discovery by the agent of the client’s change in residence, whichever is later.

Answer 15

D A research firm that is in the business of selling security analysis to customers Any person, including a research firm, who provides investment advice to others and charges a separate fee for the advice is an investment adviser. Broker-dealers whose investment advice is incidental to its business, savings institutions, and publishers of newspapers in general circulation and without specific client investment advice are not included in the term investment adviser.

Answer 16

A An individual who works for an issuer and sells securities only to institutions An individual who represents an issuer in effecting exempt transactions, such as transactions with institutions, is not considered an agent. An individual who represents an issuer and effects transactions for the issuer's securities only with employees of the issuer is excluded from the definition of an agent only if they receive no transactional compensation; in the example given here, the individual received a commission, so they are not excluded from the definition of agent. Any individual effecting securities transactions on behalf of a broker-dealer is generally considered an agent. If a Canadian BD meets the requirements for an exemption from registration, then their agents are also exempt (not excluded).

Answer 17

C Paid testimonials without a written agreement Paid testimonials are allowed in advertising for investment advisers if the proper disclosures are made, they are supervised, and there is a written agreement. This does not mention the de minimis compensation exemption and would therefore, require a written agreement.

Answer 18

D II and III Under the USA, the term 'guaranteed' means guaranteed as to payment of principal, interest, and/or dividends. Guarantees of certain performance or against losses cannot be made.

Answer 19

A When the fee has been paid and the registration has been on file for 5 days As long as the filing fee has been paid, the state registration statement has been on file with the Administrator for 5 days, and no stop order is in effect, the registration becomes effective at the same time the federal registration becomes effective.

Answer 20

C I, II, and III The application form, the registration fee, and the consent to service of process must all be filed with the State Administrator.

Answer 21

C December 31st, then annually thereafter Registrations and notice filings expire annually on December 31, unless renewed. An application for renewal requires an annual filing fee.

Answer 22

A Known as principal transactions, either is allowable when the proper procedures have been followed; advance disclosure and prior written consent A principal transaction is one where a firm either purchases securities for its own account from a client, or a firm sells securities from its own account to a client. Both are allowable when the proper procedures are followed; advance written disclosure to the client and prior written consent from the client for each transaction.

Answer 23

A Revocable trust A revocable trust allows the grantor to retain control over the assets in the trust and change beneficiaries and trustees. An irrevocable trust is a trust where the terms cannot be changed. If the trust is established upon the grantor’s death, it is called a testamentary trust.

Answer 24

A Need not be registered in the state State securities laws are known as blue-sky laws. In addition to registering with the SEC, issuers must be sure that their new offerings are either registered in every state in which they will be sold (called blue-skying the offering) or exempt from registration in those states. An attorney assisting in this process need not register as an IA, IAR, BD, or agent.

Answer 25

A III and IV RRs (agents) may not share directly or indirectly in profits and losses in customer accounts without the written authorization of the customer and the representative's broker-dealer. Written authorization of the Administrator is NOT a requirement. Under no circumstances may an RR or a broker-dealer share in customer losses as a way to guarantee the client against a loss, nor may clients be guaranteed a profit on any transaction.

Answer 26

D Computer Overhead expenses of the adviser, including office space, computers, furniture, and clerical assistance, are not permitted.

Answer 27

C III only I would require notification but no prior approval. II would require no notification or prior approval. IV is a prohibited practice and is not allowed. III would require prior approval.

Answer 28

B Considered imprudent because a single stock portfolio would not align with the expectation that fiduciaries diversify investments The prudent man rule, which does apply to IA’s, is the guideline that fiduciaries must observe in managing client assets. Under the rule, there is the expectation that fiduciaries will diversify investments in order to mitigate risk. Mitigating risk should be done regardless of the client’s risk tolerance. A single security portfolio lacks any diversification and is always considered high risk; imprudent.

Answer 29

A Guaranteed to payment of principal, interest, and dividends Guaranteed means a guarantee as to payment of principal, interest, or dividends.

Answer 30

A Making any untrue statement of fact to a retail investor The Uniform Securities Act states that it is fraudulent to make any omission or misstatement of material facts. Failing to disclose an SEC investigation, whether the fact is widely known or not, is an omission of material fact. Making an untrue statement of fact is only fraudulent if the fact is MATERIAL; misleading a customer about your prowess at golf, for example, is neither material nor fraudulent under the Act.

Answer 31

B Registration statement The registration statement must reveal whether the issuer has any adverse ruling by a state regulatory authority, a court, or the SEC in conjunction with the offering. The SEC disclaimer specifies the SEC's limits of responsibility and is included on every prospectus. Agents register at the federal and state levels using Form U4 and broker-dealers use Form BD.

Answer 32

C Presence of prior written approval by the client and employing broker-dealer No agent shall share in the profits or losses in a client's account unless there is prior written approval by the client and the agent's employing broker-dealer. Under the USA, an agent and customer do not have to share in proportion to the profits and losses in the account.

Answer 33

B Federal law that states have adopted as a guideline for fiduciaries who manage client assets The Uniform Prudent Investor Act (UPIA) is a federal act that most states have adopted as the current guideline for fiduciaries that manage client assets. Note that the federal law does not mandate states must abide by it. While it specifically addresses the importance of trustees, fiduciaries would include, but are not limited to, trustees, executors, and investment advisers.

Answer 34

D Prohibited as a recognized attempt to guarantee a profit or guarantee against a loss Under no circumstances may clients be guaranteed a profit on any transaction. Nor may an agent, IAR, or firm share in client losses as a way of guaranteeing the client against a loss.

Answer 35

B Under no circumstances The broker-dealer may never commingle firm funds or securities with customer funds or securities.

Answer 36

C The investment adviser must exercise caution, care, and control, as well as skill, strategy, and self-control when managing the client’s account When an investment adviser has discretionary authority over customer accounts, securities regulations require that the adviser consider the character of the account and client and only make decisions based on what a prudent investor would do. The investment adviser must exercise caution, care, and control, as well as skill, strategy, and self-control when managing client accounts.

Answer 37

B For 1 year after the effective date According to the Uniform Securities Act, once a registration statement for securities is effective, it remains so for 1 year after the effective date or until the offering is complete. The Administrator may require the issuer to keep the registration statement up-to-date, as well as file reports about the progress of the offering. If there are securities remaining unsold after the 1-year period elapses, the issuer may apply to the Administrator for an extension, which may or may not be granted.

Answer 38

C An agent agrees to lend money for the purchase of securities to one of their best clients with the understanding that it will be paid back promptly with no interest or any other considerations advantageous to the agent Don’t be misled by the complicated scenarios. It is a prohibited practice to borrow money from a client. However, it is permitted when the client is in the business of lending. Therefore, if the client is a bank (banks are presumed to be in the business of lending) there is no prohibition on borrowing from them. Broker-dealers are allowed to lend cash or securities to customers based on a signed margin agreement.

Answer 39

C II and IV The Administrator may require the filing of any prospectus, advertising, sales literature, circular, pamphlets, or form letters that are addressed to or intended for distribution to prospective investors. Exempt securities (including Treasurys and GNMAs), exempt transactions, and federal covered securities are not subject to the advertising filing requirements of the USA. CMOs are not exempt securities, and individual correspondence does not have to be filed.

Answer 40

C II and IV The Administrator may require the filing of any prospectus, advertising, sales literature, circular, pamphlets, or form letters that are addressed to or intended for distribution to prospective investors. Exempt securities (including Treasurys and GNMAs), exempt transactions, and federal covered securities are not subject to the advertising filing requirements of the USA. CMOs are not exempt securities, and individual correspondence does not have to be filed.

Answer 41

B A sales secretary who solicits and accepts orders from clients A sales secretary whose duties are administrative only is not an agent. A secretary, sales assistant, or other clerical person who is authorized to take sales orders over the phone, or otherwise accept customer orders, is an agent.

Answer 42

B A broker-dealer, registered in 1 state, that has no place of business in another state and only effects securities transactions with existing customers who are temporarily in that other state is not considered a broker-dealer in that other state First, remember that if a BD has any offices in a state or does business with residents of a state, the BD must be registered in that state. However, if they have no offices in a state and are only doing business with existing customers who have temporarily relocated to or are vacationing in that state, the BD is not considered a BD in that state and need not be registered there.

Answer 43

A The issuer receives the funds from the transaction Primary market transactions are also known as issuer transactions. Issuers are usually corporations, governments, or municipalities. In a primary market transaction, the issuer receives the funds from the transaction. Trading outstanding securities on exchanges and Nasdaq are secondary market transactions.

Answer 44

C The Administrator deems that it is in the public's best interest The public's best interest plus one or more of the specified causes must be present to cause denial, suspension, or revocation of a registration.

Answer 45

C A broker-dealer who charges a fee for reviewing a customer's portfolio and suggesting more suitable investments The broker-dealer who charges a fee for reviewing a customer's portfolio is performing the service for a special fee, and thus, would have to be registered as an investment adviser. A bank that includes investment advice is excluded as a bank. A lawyer, hired to advise a client in bankruptcy, who advises the client to liquidate their stock portfolio, is excluded because the advice is incidental to the lawyer's business. An individual who lists their pick for the most promising stock is excluded because the advice published does not relate to a specific investment situation for each client.

Answer 46

A Form U4 Form U4 is the registration application used for individuals registering in a state. Broker-dealers must file Form U5 when an agent is terminated from their firm. Form BD is the registration form for broker-dealers, and Form ADV is the registration form for investment advisers.

Answer 47

D At noon on the 30th day after the application was filed Registration becomes effective at noon on the 30th day after the application is filed with the Administrator.

Answer 48

B I and IV An insurance salesperson that sells traditional (fixed) insurance products only is not effecting securities transactions and is not an agent. If the individual sells variable insurance products, then the individual would be an agent and would be required to register. Any employee of a brokerage firm who may effect transactions with a retail customer is considered an agent, regardless of title. Employees of issuers who only deal with investment bankers are not considered agents.

Answer 49

D A bank holding $150 million in noninstitutional client assets The federal government and the states have divided the responsibility for regulating investment advisers. In general, an adviser must be registered with either the SEC or with one or more states, but not both. The basis for the federal-state division is usually assets under management (AUM). Advisers with assets of $110 million or more must register with the SEC, while those with assets under $100 million fall under state jurisdiction. Advisers managing between $100 million and $110 million may elect to be regulated by the state(s) in which they conduct business or by the SEC. Advisers to investment companies must always register with the SEC and are, therefore, federal covered. The bank is not a federal covered adviser because banks (as well as trust companies and insurance companies) are excluded from the definition of an investment adviser.

Answer 50

B Write state law The Administrator is empowered to investigate and subpoena persons both within their state and across state lines. The State Administrator does not write the securities laws, but rather enforces the laws that are created by the state legislature.

Answer 51

A The IA must register with the SEC, file notice with the Administrator, and pay a state filing fee Organizations and firms that pass the ABC test meet the definition of an investment adviser. Here is the test: An investment adviser is someone who A) provides ADVICE about securities, B) as a BUSINESS, C) for COMPENSATION. Once this test is met, investment advisers must determine if they need to register with the SEC or one or more states. This determination is based upon assets under management. Larger investment advisers register with the SEC, while smaller investment advisers register with one or more states. One exception: investment advisers to registered investment companies are required to register with the SEC, regardless of their assets under management. A firm acting as an investment adviser for a registered investment company, regardless of their assets under management, must register with the SEC as a federal covered adviser. Federal covered advisers are exempt from state registration but must still file a notice (notice filing) by providing the Administrator with records they have filed with the SEC and pay the annual state notice filing fees.

Answer 52

B ABC Bank, which acts as adviser to the Granite family of funds The Investment Advisers Act of 1940 specifically excludes a lawyer, accountant, teacher, or engineer whose performance of such services is solely incidental to the practice of their profession. Also excluded are any broker or dealer whose performance of these services is solely incidental to the conduct of its business as a broker-dealer and who receives no special compensation for them. The Act also excludes the publisher of any bona fide newspaper, news magazine, or business or financial publication of general and regular circulation from the definition of IA. Although the Act generally excludes banks and bank holding companies from the definition of IA, this exclusion is lost when the bank/bank holding company acts as an adviser to a registered investment company. Firms that provide advice for registered investment companies must register with the SEC, making the firm a federal covered investment adviser. ABC Bank, therefore, is not excluded.

Answer 53

Consent to service of process A consent to service of process appoints the Administrator as their representative to be served legal papers on behalf of the registrant. The papers can be served to the Administrator if the registrant cannot be located. The Administrator may be served any complaints, petitions, or orders involving any noncriminal proceeding against that person.

Answer 54

B I, II, III, and IV The only broker-dealer exemption deals with Canadian broker-dealers doing business with existing customers who are temporarily in the United States. There are several broker-dealer exclusions including agents, depository institutions, issuers, the institutional exclusion, and the retail exclusion. The institutional exclusion is for a BD that has no place of business in the state, who only effects transactions with institutional investors. The retail, or snowbird, exclusion is for a BD that has no place of business in the state and only effects transactions with existing customers who are temporarily in the other state. Remember that BDs must register in any state they maintain an office and/or a retail client resides in the state.

Answer 55

B A broker-dealer with branch offices in a state must be registered in that state Regardless of how many offices a broker-dealer has in a state, as long as there is at least one, the BD must register in that state to do business there. However, if there are no branch offices in the state, the broker-dealer is excluded from registration there if it does business only with other BDs, institutional investors, or the issuer of a security involved in a transaction of those securities.

Answer 56

A III and IV Any person who effects securities transactions with noninstitutional (retail) investors who reside in a state must register as a broker-dealer in that state even if the firm has no place of business in the state. Note that while there is a de minimis exemption for investment advisers, there is none for broker-dealers. Remember, a BD must register in a state as soon as the firm has one retail customer who resides in the state, and/or if they have an office in the state

Answer 57

B It has no place of business in the state and its only client in the state is an employee pension fund with assets of $15 million An investment adviser with no place of business in a state and whose only clients in the state are institutional investors is still considered an investment adviser in that state, but they are exempt from registration requirements in the state. Once an investment adviser has more than 5 retail customers residing in a specific state, the investment adviser must be registered in the state. An investment adviser must also register in any state where it maintains an office unless registered with the SEC as a federal covered investment adviser.

Answer 58

Generally, an investment adviser must register in each state in which it does business. However, if the adviser does not have an office in the state and it only deals with institutional customers, or it has 5 or fewer retail clients within a 12-month period, it is exempt from registering in that state. This question asks when this adviser would need to register, and in Choice IV, it has 6 retail investors, which exceeds the threshold for the exemption.

Answer 59

C Serving existing retail customers who are temporarily in the state A securities firm with no office in a state, dealing solely with existing customers who are not residents of the state where the transaction takes place, is excluded from the definition of a broker-dealer, and the firm does not have to register in that state. This is called the retail customer (snowbird) exclusion. Remember, BDs must register in any state they maintain an office,and/or a retail client resides in the state.

Answer 60

D Federal covered advisers are excluded from the definition of IA under the Uniform Securities Act and are not required to register with the state Federal covered advisers are excluded from the definition of investment adviser under the Uniform Securities Act.

Answer 61

D Annual renewal of the agent's license with the Administrator Agents must annually renew their licenses with their State Administrator. They need not maintain continued residence in the state in which they originally registered, however they must register in every state in which they conduct business. Registrations and notice filings expire annually on December 31 unless renewed. An application for renewal requires an annual filing fee.

Answer 62

A State A only Regardless of whether the IA firm registers with the state or SEC, if they have an office in the state (in this case, State A) the IAR must be registered in the state. IARs working for federal covered advisers only register in the states where the IAR maintains an office. However, if an IAR meets with customers in another state on a regular basis, this could be deemed as having a place of business in the state which would require registration in that state. IARs working for a state-registered investment adviser must register in all states where the IAR maintains an office and/or has retail customers who reside in that state.

Answer 63

D A class A felony conviction from 7 years ago When registering with a state, an agent must disclose all convictions for felonies and securities-related misdemeanors. If the conviction for a felony or securities-related misdemeanor was within the 10 years preceding the date of registration, the agent will likely be denied registration in the state.

Answer 64

D I, II, III, and IV There are a number of grounds on which the Administrator could deny an application for registration as an agent. This may include: filing an incomplete application or one that contains false or misleading statements, willfully violating or failing to comply with any provision of the USA, or being convicted, within the last 10 years, of any felony or a misdemeanor involving any aspect of the securities business.

Answer 65

D I, II, III, and IV There are a number of grounds on which the Administrator could deny an application for registration as an agent. This may include: filing an incomplete application or one that contains false or misleading statements, willfully violating or failing to comply with any provision of the USA, or being convicted, within the last 10 years, of any felony or a misdemeanor involving any aspect of the securities business.

Answer 66

B I and III An investment adviser representative is any partner, officer, director, employee, or associate of an investment adviser that is registered, or required to be registered, under the USA; or one who has a place of business in the state and is employed by or associated with a federal covered adviser. An IAR is anyone who: * Makes recommendations or otherwise renders advice regarding securities * Manages accounts or portfolios of clients * Determines which recommendations or advice regarding securities should be given * Solicits, offers or negotiates for the sale of, or sells, investment advisory services * Supervises employees who engage in any of these activities

Answer 67

C A janitor who occasionally accepts unsolicited orders at a broker-dealer Be aware of questions that contain "agents in disguise", such as secretaries or janitors who accept unsolicited trades only. Their job title is irrelevant. If a person employed by a broker-dealer is effecting securities transactions with the public, they are an agent. We have no evidence that any of the individuals in the other choices are "accepting" or "effecting" securities transactions, nor do we have evidence that they are supervising those that accept or execute trades (i.e., the partner of the broker-dealer).

Answer 68

B By December 31st of the current year All persons registered with the Administrator must renew their registrations (and pay a new fee) every year by December 31st.

Answer 69

D Lack of experience Registration may not be denied solely because of lack of experience, as long as the person has the proper training and/or knowledge.

Answer 70

D I and IV An individual representing an issuer in the sale of common stock to its employees for compensation (commission) must be registered as an issuer agent in that state. If the individual representing the issuer did not receive compensation for the issuer employee transactions, then they would be excluded from registering as an agent. In general, sales people that represent BDs must register as agents. Individuals who directly represent issuers in selling exempt securities or engaging in exempt transactions are excluded from the Uniform Securities Act's definition of an agent.

Answer 71

B If it meets all the private placement prerequisites, it does not need to be registered When a transaction meets all the private placement requirements, the security being placed does not need to be registered with the state, nor does it need to meet USA advertising and sales literature filing requirements. Private placements may include an offer (not transaction) to no more than 10 noninstitutional investors within any 12-month period. No securities are exempt from the USA's anti-fraud provisions.

Answer 72

A III and IV Firms with no office in a state and that only sell to institutions or existing customers passing through the state are not considered to be broker-dealers in that state under the USA. Once a firm maintains an office within a state, it is considered to be a broker-dealer regardless of the type of securities sold or the client base served.

Answer 73

C I and II When effecting transactions for customers, an individual is acting as an agent of a broker-dealer, not an IAR. An investment adviser representative (IAR) is any partner, officer, director of, or individual employed by or associated with an investment adviser that is registered or required to be registered under the Uniform Securities Act. IARs of federal covered advisers are required to register in the state where their office or place of business is located. They do not register based on the location of their clients and only register at the state level. There is no federal registration of IARs. These registration requirements pertain to those who perform any of the following duties: *Makes any recommendations or gives investment advice regarding securities *Manages client accounts or portfolios *Determines the nature of recommendation or advice given *Solicits, offers, or negotiates for the sale of or sells investment advisory services *Supervises employees performing any of these functions

Answer 74

D An economist The Uniform Securities Act excludes certain professionals from the definition of an investment adviser if advice on securities is solely incidental to the practice of the individual's profession. This exclusion applies to lawyers, accountants, teachers, and engineers. Economists are not excluded. If an economist provides investment advice on securities they must be registered as an IA.

Answer 75

D A commodities futures contract To determine if an instrument meets the definition of a security, it must pass the Howey test. It must be an investment of money, in a common enterprise, with the expectation of profits from the efforts of a third party. The most common securities include stocks, bonds, options, warrants, rights, and investment companies. Some of the odder types you may encounter on your test include interests in farmland, animals, or natural resources, such as oil and gas or gold mines. Futures and commodities are not considered securities under the USA, but options on these instruments (or anything else) are considered to meet the definition.

Answer 76

D An agent enters multiple buy and sell orders for the same security simultaneously Buying a security in one market and simultaneously selling it in another to take advantage of price discrepancies between the markets is a legal activity known as arbitrage. The managing underwriter entering bids to buy back shares of a new offering to 'prop up' the market price refers to stabilization, which is the only legal form of market manipulation under SEC rules. Many advisers and portfolio managers use sophisticated math and automated computer programs to determine what trades to execute, and this activity is perfectly legal. Entering multiple buy and sell orders for the same security, at the same time, is likely to be viewed as 'painting the tape.' This is engaging in transactions whose only purpose is to create the appearance of active trading, while in reality no securities are actually changing hands and there is no real change in ownership. This is considered a fraudulent practice.

Answer 77

D The attorney is correct in that they are considered a finder and, therefore, does not meet the definition of a broker-dealer An M&A finder finds companies that may be acquired. By making the referral the attorney is considered to be a finder. However, accepting no compensation based on the purchase or sale of the company’s securities, the attorney is not considered a BD. If the M&A professional is being compensated on the closing of the deal, they are defined as broker-dealers.

Answer 78

D Partnership articles and any amendments While NASAA model rules require all four of these records to be kept for the life of the firm plus 3 years, in this case, only the partnership articles are unnecessary. The investment adviser is organized as a corporation, not as a partnership, and so there is no partnership agreement. The articles of incorporation, the stock certificates, and the minutes of the board of directors’ meetings must be kept on file at least 3 years past the date the firm has ceased operations.

Answer 79

B A 15-year-old child prodigy who tries to predict the future in the financial markets According to the Act, individuals and entities are considered persons. A minor, someone who is deceased, and someone who has been declared mentally incompetent are excluded from the definition of a person under the USA.

Answer 80

C States A, B, and C When a sale results from an offer, the Administrator has authority over any sale that originated in their state, was directed into their state, or was accepted in their state. Therefore, the administrators of all 3 states have potential jurisdiction over this transaction.

Answer 81

A The statute of limitations is 3 years from date of sale or rendering of advice or 2 years after discovery, whichever comes first Civil proceedings may not be brought under the Uniform Securities Act more than 3 years after the sale of the security or the giving of the advice or 2 years after the discovery of the violation, whichever comes first. The statute of limitations for criminal penalties is 5 years from the date of the offense.

Answer 82

C Registration remains effective until it expires In the event of a merger, sale, or acquisition, a broker-dealer or investment adviser registration is not transferable, it is withdrawn, and a new application is submitted by the successor firm.

Answer 83

A A publisher of a market newsletter on investments in oil, gas, and minerals The term investment adviser does not include publishers of newsletters that provide generic investment information. Conversely, advisers with an office in the state must register, as would the publisher of an investment newsletter containing advice on each client's specific investment situation. A financial planner who charges a separate fee for investment advice is considered to be an investment adviser.

Answer 84

A Regulations require agents to notify their firms of any outside business activities which firms may allow or disallow as they see fit In order to prevent misconduct or conflicts of interest that could harm the firm, or their customers, regulations require agents to make prior notification to their firms of any outside business activities. Firms, at their own discretion, can allow or disallow these outside activities.

Answer 85

D It has no place of business in the state and its only client in the state is an employee pension fund with assets of $15 million An investment adviser with no place of business in a state and whose only clients in the state are institutional investors is still considered an investment adviser in that state, but they are exempt from registration requirements in the state. Once an investment adviser has more than 5 retail customers residing in a specific state, the investment adviser must be registered in the state. An investment adviser must also register in any state where it maintains an office unless registered with the SEC as a federal covered investment adviser.

Answer 86

D It has no place of business in the state and its only client in the state is an employee pension fund with assets of $15 million An investment adviser with no place of business in a state and whose only clients in the state are institutional investors is still considered an investment adviser in that state, but they are exempt from registration requirements in the state. Once an investment adviser has more than 5 retail customers residing in a specific state, the investment adviser must be registered in the state. An investment adviser must also register in any state where it maintains an office unless registered with the SEC as a federal covered investment adviser.

Answer 87

B The due date of the confirmation of the transaction For all transactions that require delivery of a prospectus, such as purchases of IPOs or mutual funds, agents are required to provide each customer with a copy of the prospectus no later than the due date of the confirmation of the transaction.

Answer 88

D II and III Note that cancellation of a registration is different from suspension, denial, or revocation of a registration. Where suspension, denial, or revocation are punitive, i.e., the Administrator believes the registrant or applicant has violated one or more laws and regulations, cancellation is administrative. Cancellation should not be seen as evidence or implication of wrongdoing. A registrant's registration would be cancelled if they ceased to exist or to do business in a state, or if they cannot be located by an Administrator (Choices II and III). Choices I and IV would likely result in a denial, suspension, or revocation

Answer 89

B Non-exempt securities Non-exempt securities must be registered with the State Administrator by filing a registration statement.

Answer 90

B Allowable because both parties, agent and client agree, and the firm has given approval Agents and IARs may not share directly or indirectly in profits and losses in client accounts without prior written agreement between the client and the agent and approval of the employing firm. Therefore, in the above scenario all conditions to allow the sharing have been met and under the USA it would be allowed. While FINRA guidelines state that any sharing must be proportionate to the contributions made to the account, the USA doesn’t address proportionate sharing, only that the sharing must be approved. Therefore, the conditions have been met under the USA.

Answer 91

D Purchasing shares of a balanced mutual fund A diversified portfolio of investments to improve the overall return, and diversification characteristics can be accomplished by investing in a balanced fund, which would meet the fiduciary responsibilities of the custodian of the account. The custodian must adhere to prudent investment standards by making investment decisions that are suitable for the child. The Uniform Prudent Investors Act (UPIA) establishes those standards. The custodian can purchase stocks, bonds, mutual funds, UITs, closed-end funds, and can participate in covered call writing.

Answer 92

B Compensation received based on the purchase or sale of a company’s securities Receipt of compensation at the close of either a merger or acquisition based on the purchase or sale of either company’s securities is what defines the M&A professional as a broker-dealer.

Answer 93

A I Under the USA, the agent for the opera singer is the only IA on the list. Remember the ABC test. An IA must provide advice about securities, as a business, and receive compensation for these services. The former insurance agent is providing advice but not about securities. The broker is an agent of a broker-dealer and is excluded from the definition. The market sage is not getting paid for their advice.

Answer 94

D Not an agent This individual represents the issuer of a security in attempting to effect securities transactions. Since the securities being sold are exempt securities (bonds issued by a school board would be considered municipal securities), the individual is not an agent under the USA.

Answer 95

B The Uniform Securities Act The Administrator may amend or repeal any rule or order involving registration, reports, and other practices as necessary to carry out the provisions of their state's securities laws and rules under the Uniform Securities Act.

Answer 96

A An acknowledgement that the client has received both the adviser's brochure (ADV Part 2) and the separate solicitor's disclosure The accountant is a solicitor. A solicitor is a person who, directly or indirectly, solicits clients for or refers clients to an investment adviser. While a solicitor is often a person associated with an IA (such as an employee), they can also be someone who is not affiliated with the adviser except for the fact that they solicit business for the firm. Prior to, or at the time of, entering into any advisory contract with the client, the solicitor must obtain from the client a signed and dated acknowledgement that the client has received both the adviser's brochure and the separate solicitor's disclosure.

Answer 97

A Must be registered While certain registration exemptions apply to an agent representing an issuer, an agent representing a broker-dealer must always be registered, whether the security is exempt or non-exempt. When working for a BD, the only time an individual is not required to register is when they are not working in a sales capacity or when they are an agent of an exempt BD.

Answer 98

B The agent The agent or IAR must determine what information is material and relay that information to the client.

Answer 99

A A broker-dealer who charges an additional fee to review and advise a client on their portfolio Any persons, including broker-dealers and financial planners, who provide investment advice to others and charge a separate fee for the advice are investment advisers. On the other hand, the definition of investment adviser does not include givers of advice where the advice is incidental to their profession and who charge no separate fees for the advice. A broker-dealer agent recommending an exchange between funds would not be considered an IA, since there is no additional compensation received for providing the advice.

Answer 100

A Banks, savings institutions, and trust or insurance companies The term broker-dealer includes a legal person (like a securities operation) effecting securities transactions for its own account or the accounts of others. Excluded from this definition is a person with no place of business in this state and who deals with certain well-informed investors, such as banks, savings institutions, and trust or insurance companies. There is no exclusion for broker-dealers with a limited number of retail customers. There is also no exclusion for a broker-dealer trading only in exempt securities.

Answer 101

A I and IV To conduct securities business with a customer in most states, the agent (RR) and BD must be registered in the state. There is not a separate securities registration exam for each state - those states that require an agent to 'qualify by examination' have standardized the exams- and there is no requirement for the principal supervising an RR to be registered in each state in which the RR conducts business.

Answer 102

B Notify their manager of the letter, and let the principal deal with the problem Customer complaints must be handled by a principal. An RR should never attempt to resolve a customer dispute on their own. RRs are required to promptly report all customer complaints to their supervisors.

Answer 103

D Are registered in that state An agent must be registered in the agent's state of residence, the state where the securities are offered, solicited, or advertised by the agent, the state where the securities are sold by the agent, and where the customer resides.

Answer 104

D The Administrator The State Securities Administrator determines the effective date for all registrations under the USA.

Answer 105

C I, III, and IV An employee of a bank selling the bank's securities to the public would not be considered an agent, but an employee of a bank holding company would. The life insurance salesperson is not selling securities, while the secretary is. With the exception of those issued by Canadian political subdivisions, only securities from a national government are exempt. Paris is a city, not a country, so this salesperson is working for a non-exempt issuer and must register as an agent.

Answer 106

B The agent may not honor the client's request The Uniform Securities Act permits the Administrator to require, as a condition of registration of securities in the state, that a prospectus be sent or given to each person to whom an offer is made in accordance with the prospectus delivery requirements of the Securities Act of 1933. This would generally require a prospectus to be given or sent to the customer at or before the completion of the transaction. There is no provision that waives this requirement upon client request.

Answer 107

A 30 If the buyer receives a letter of rescission, they must accept the offer within 30 days. If the investor does not accept the offer, they have no legal recourse later.

Answer 108

C The agent’s affiliation with the BD must be disclosed in the communication and a legend regarding registration in the state must be included showing that the agent is exempt from registration in that state For agents using internet communications to distribute information in a state, the following must always appear in the communication; The agent’s affiliation with the BD must be disclosed, and a legend must show that in order to transact business in that state, the agent is either registered or exempt from state registration requirements.

Answer 109

B This individual is an issuer agent Some corporations have internal dividend reinvestment programs (DRIPs) that allow shareholders to automatically reinvest their dividends into more shares of the company's stock, usually with no commission charge and sometimes at a discount from the market price. An individual making the purchases required to administer the plan would be considered an agent of the issuer. This issuer agent may, however, be excluded from registration under the USA.

Answer 110

B Fraudulent and misleading if deliberate Deliberately withholding a material fact from a client is considered a fraudulent act.

Answer 111

D An attempt to dispose of a security for value An attempt to dispose of a security for value is an offer. If the offer is successful, the actual disposition of the security, for value, is a sale.

Answer 112

D The customer's funds may not be commingled with other customers’ funds If an investment adviser has custody of customer funds and/or securities, these customer assets must be kept in a segregated account. A customer's funds may be commingled with other customer funds in an omnibus account, but no customer funds may be commingled with investment adviser funds.

Answer 113

D The customer's funds may not be commingled with other customers’ funds If an investment adviser has custody of customer funds and/or securities, these customer assets must be kept in a segregated account. A customer's funds may be commingled with other customer funds in an omnibus account, but no customer funds may be commingled with investment adviser funds.

Answer 114

B Neither fraudulent nor unethical Surety bonds are generally required only in the case where the adviser exercises discretion or has custody of customer assets; this would be neither fraudulent nor unethical. If a surety bond is not required, there is no reason to disclose to clients that the firm does not have one.

Answer 115

A Statement of the issuer's competitiveness A statement of the issuer's competitiveness is not required.

Answer 116

A I, II, and III All IA contracts must include three statements: 1) a statement that the IA may not be compensated based on account appreciation or capital gains (a share in customer profits), 2) a statement prohibiting contract assignment without customer consent and 3) if the IA is structured as a partnership, a statement providing for notification to all customers in the event of a partnership change. Note that the requirement is only to notify customers - customer consent is not required unless it is a majority change.

Answer 117

C An omission Omission means failure to do something, especially something that one has a moral or legal obligation to do. Deliberately withholding or omitting a material fact from a client is considered a frau

Answer 118

D 90 days after the firm's fiscal year end For state-registered investment advisers, the USA requires the firm to file an updated Form ADV with the state within 90 days of the firm's fiscal year end. It may be filed earlier, but the deadline is 90 days after the fiscal year ends.

Answer 119

A Information about an investment adviser representative Form ADV Part 2A contains information about the investment advisory firm. Form 2B, also known as the brochure supplement, contains information about investment adviser representatives, including the representative's experience, education, and any disciplinary history.

Answer 120

B Charging wrap fees if registered as a BD only Wrap accounts are considered an investment advisory product, and a person must be registered as an IA to charge wrap fees.

Answer 121

C Need not be registered in the state State securities laws are known as blue-sky laws. In addition to registering with the SEC, issuers must be sure that their new offerings are either registered in every state in which they will be sold (called blue-skying the offering) or exempt from registration in those states. An attorney assisting in this process need not register as an IA, IAR, BD, or

Answer 122

C Need not be registered in the state State securities laws are known as blue-sky laws. In addition to registering with the SEC, issuers must be sure that their new offerings are either registered in every state in which they will be sold (called blue-skying the offering) or exempt from registration in those states. An attorney assisting in this process need not register as an IA, IAR, BD, or

Answer 123

A Postpone or suspend the effective date of registration When an administrator issues a stop order, they may postpone or suspend the effectiveness of a registration until all questions relevant to the stop order are disclosed.

Answer 124

C Blanket authorization to do agency cross transactions and is permissible This is an example of a blanket authorization to do agency cross transactions. This occurs when the IA matches 2 clients for the same transaction. A blanket authorization allows an IA to execute agency crosses for clients without notifying the client prior to each trade. Agency cross transactions, and the blanket authorizations to do them, are permissible under the Investment Advisers Act of 1940.

Answer 125

B Segregated account If an investment adviser has custody of customer funds and/or securities, these customer assets must be segregated from firm assets.

Answer 126

B Segregated account If an investment adviser has custody of customer funds and/or securities, these customer assets must be segregated from firm assets.

Answer 127

B Wrap account When a client pays the investment adviser or sponsor a flat fee for their advisory and order execution transactions, it is called a wrap account.

Answer 128

A The client places an unsolicited buy order, which the broker-dealer fills by acting as a principal in the trade Unsolicited orders (those for which no advice was given) are exempt from the prior disclosure and advance consent requirement.

Answer 129

C I and III Trust accounts are established by the delivery of a signed trust agreement to the agent along with the normal new account documentation. The key item for the agent is to recognize that recommendations made for such an account must be suitable for the trust beneficiary, not the trustee or the trustee's attorney. It is also critical that the agent closely adheres to the guidelines established in the trust document.

Answer 130

A Considered imprudent because a single stock portfolio would not align with the expectation that fiduciaries diversify investments The prudent man rule, which does apply to IA’s, is the guideline that fiduciaries must observe in managing client assets. Under the rule, there is the expectation that fiduciaries will diversify investments in order to mitigate risk. Mitigating risk should be done regardless of the client’s risk tolerance. A single security portfolio lacks any diversification and is always considered high risk; imprudent.

Answer 131

B Federal law that states have adopted as a guideline for fiduciaries who manage client assets The Uniform Prudent Investor Act (UPIA) is a federal act that most states have adopted as the current guideline for fiduciaries that manage client assets. Note that the federal law does not mandate states must abide by it. While it specifically addresses the importance of trustees, fiduciaries would include, but are not limited to, trustees, executors, and investment advisers.

Answer 132

C Under no circumstances The broker-dealer may never commingle firm funds or securities with customer funds or securities.

Answer 133

C Under no circumstances The broker-dealer may never commingle firm funds or securities with customer funds or securities.

Answer 134

C Under no circumstances NASAA does not allow for borrowing from, or lending to, friends or family members. FINRA does allow this practice.

Answer 135

D In most states it will be effective 5 days after filing The filing method of registration is available only to issuers who are currently registered with the SEC and considered federally covered. Coordination is the method by which the issuer's state registration is processed in multiple states in conjunction with its SEC registration, is normally used with IPOs, and registration is effective automatically when the federal registration is effective. 20 days is the cooling-off period for an IPO. The effective date will vary from state to state, but typically it is 5 days after filing.

Answer 136

B Manipulative trading involving a series of purchases, or a series of sales, rather than paired buys and sells When manipulative trading involves a series of purchases, or a series of sales, rather than paired buys and sells, the activity is known as painting the tape. This is fraudulent since the intent is to give the false appearance of a trend in a stock's price and lure other investors into the same trading activity. When 2 or more parties are involved in a pattern of buying and selling a security merely to give the appearance of active trading, this is known as engaging in matched sales.

Answer 137

A All parties, the agent, CDT Securities, and MES Brokerage, are required to notify the NJ State Administrator If an agent of a broker-dealer terminates employment to join another broker-dealer, all parties, the agent, the BD the agent is leaving, and the BD the agent is joining are required to notify the State Administrator. Note, there is no language in state securities law to accommodate the “transfer” of a registration.

Answer 138

A Charging wrap fees if registered as a BD only Wrap accounts are considered an investment advisory product, and a person must be registered as an IA to charge wrap fees.

Answer 139

C Not transferable Agent's and investment adviser representative's registrations are NOT transferable. Agents and investment adviser representatives terminate their existing registrations at their old employers by filing with the Administrator. Then, they initiate new registrations at their new employers by filing with the Administrator. Unless denied by the Administrator, an application for registration becomes effective at noon, 30 days after it is filed. By rule or order, the Administrator may set an earlier effective date.

Answer 140

A Segregated account If an investment adviser has custody of customer funds and/or securities, these customer assets must be segregated from firm assets.

Answer 141

B Lack of experience The Administrator may not deny registration solely on the basis of lack of experience. Failure to pass the exam or pay the filing fee, or any felony committed within the last 10 years, are grounds for denial.

Answer 142

B Two reasons The Administrator must have at least two reasons to deny, suspend, or revoke a registration. One of these reasons must be that the order is in the public interest.

Answer 143

C Compensation received based on the purchase or sale of a company’s securities Receipt of compensation at the close of either a merger or acquisition based on the purchase or sale of either company’s securities is what defines the M&A professional as a broker-dealer.

Answer 144

A Risk factor captions should be in bold-face type in a font at least 2 points larger than the surrounding text In order to make certain that investors are provided with material information regarding an offering, a risk disclosure should be included in the prospectus for all new issues. According to the risk disclosure guidelines in the NASAA Statements of Policy, the following risk factor disclosure guidelines should be applied: *The prospectus should provide a detailed list of material risk factors associated with the offering. *This list should immediately follow the cover of the prospectus. Risks associated with the offering should be prioritized in order, with the most significant risks listed first. *Risk factor captions should stand out. Italicized, bolded, or underlined typefaces help the reader to quickly comprehend the nature of each particular risk. There is no requirement on the font size. *The prospectus should provide a detailed list of material risk factors associated with the offering. *This list should immediately follow the cover of the prospectus. Risks associated with the offering should be prioritized in order, with the most significant risks listed first. *Risk factor captions should stand out. Italicized, bolded, or underlined typefaces help the reader to quickly comprehend the nature of each particular risk. There is no requirement on the font size.

Answer 145

B Presence of prior written approval by the client and employing broker-dealer No agent shall share in the profits or losses in a client's account unless there is prior written approval by the client and the agent's employing broker-dealer. Under the USA, an agent and customer do not have to share in proportion to the profits and losses in the account.

Answer 146

A To do business with residents in that state, the BD must be registered in that state Without an office or place of business in a state, a BD will still need to be registered in that state to do business there unless the business is conducted only with other BDs, institutional investors, or issuers in that state.

Answer 147

A I, II, and III To determine whether an instrument or transaction is an “investment contract” (security) it must pass the Howey test, which is based on the following 3 conditions: 1. It must be an investment of money 2. In a common enterprise 3. With the expectation of profits from the efforts of a third party.

Answer 148

A The IA is responsible for the information contained in the third-party website because they are deemed to have adopted the content via their endorsement of the product This IA has adopted the insurance company’s content via their endorsement of the product. They are not entangled with the insurance company because they had no role in the preparation of the content. However, when either adoption or entanglement is deemed to have occurred, the firm is responsible for the information contained in the third-party website and are liable for any misstatements and misleading information in it.

Answer 149

D Violates the anti-fraud provisions of the USA An agent may not guarantee a security or reimburse a customer who has experienced a loss.

Answer 150

A Neither fraudulent nor unethical Surety bonds are generally required only in the case where the adviser exercises discretion or has custody of customer assets; this would be neither fraudulent nor unethical. If a surety bond is not required, there is no reason to disclose to clients that the firm does not have o

Answer 151

D Initiate a criminal investigation Criminal penalties are initiated and imposed by a court, not an investor. In this case the violation was unintentional and does not rise to the level needed to seek a criminal investigation. An investor can seek restitution through a civil suit. A letter of rescission may be offered and accepted prior to the initiation of a civil suit.

Answer 152

A Promptly after the initial transaction in the account It is a violation to execute any transaction in a margin account without securing from the customer a properly executed (signed) written margin agreement promptly after the initial transaction in the account.

Answer 153

B Are prohibited Nonpublic information is not allowed to be passed along or acted upon.

Answer 154

C I, II, III, and IV An Administrator may examine records in any jurisdiction. If any records exist, they are subject to the Administrator's examination. Regulations of FINRA and other SROs require locations where certain types of securities business are conducted to be registered as offices of supervisory jurisdiction (OSJs).

Answer 155

C LMN Brokerage, a broker-dealer located in Toronto, Ontario, Canada who is transacting business with an existing client of LMN, who is in State X temporarily There is only 1 exemption for broker-dealers, certain Canadian broker-dealers. The Canadian firm must be registered as a broker-dealer in Canada and cannot have a place of business in the state. Canadian broker-dealers and their agents may not solicit new clients in a state under this exemption; they are only permitted to work with their existing clients that are in the state temporarily. If the Canadian firm has a location in the state, or if they are soliciting new clients, the registration process must be followed. The easiest way to remember the registration requirements for broker-dealers is that broker-dealers MUST register in any state they maintain an office and/or a retail client resides in the state.

Answer 156

C Revocable trust A revocable trust allows the grantor to retain control over the assets in the trust and change beneficiaries and trustees. An irrevocable trust is a trust where the terms cannot be changed. If the trust is established upon the grantor’s death, it is called a testamentary trust.

Answer 157

D I, II, and III Under the USA, the terms sale or sell include every contract of sale or contract to sell, or disposition of, a security or interest in a security for value. An attempt to sell a security is defined as an offer, not a sale under the USA. Note that in some cases, such as giving a warrant with a stock purchase, the transaction may be considered both an offer and sale, since the stock was purchased and the warrant may entail a future cash outlay upon exercise.

Answer 158

D A person who is buying the security The buyer may not register the security. Any of the other parties may register. Securities are registered by those offering them not buying them

Answer 159

D Taking and holding client funds or securities if the adviser notifies the State Administrator An investment adviser may only hold client funds or securities if the firm notifies the State Administrator and the State Administrator has not prohibited this action. It is unethical to lend money to customers. An adviser must get the customer's written consent before assigning the customer's contract, and an adviser cannot purchase new computers with soft dollars. Soft-dollar expenditures must have a direct benefit to the client.

Answer 160

A Notify the Administrator Investment advisers may take custody of client securities or funds unless the Administrator specifically prohibits it, but they must promptly notify the Administrator at the point they begin taking custody of any assets. There is no requirement to receive permission from the Administrator or provide them with customer names. There is no separate written approval needed from customers. However, the fact that the adviser takes custody would be found in the investment advisory contract.

Answer 161

C Securities not listed on an exchange or Nasdaq Federal covered securities include exchange-listed securities and securities of the same issuer that are equal in seniority or that is a senior securities, or rights or warrants to purchase any of these listed securities. Securities issued by an investment company that is registered under the Investment Company Act of 1940, securities offered or sold to qualified purchasers, municipal securities of out-of-state issuers, and private placements under Regulation D.

Answer 162

B 2 years An investment adviser's records must be readily accessible for a total of 5 years and kept in the adviser’s principal office for the first 2 years.

Answer 163

D Notify the Administrator whenever such custody is obtained Custody is allowed if not specifically prohibited by the Administrator. If allowed, the IA must notify the Administrator when the firm begins taking custody. There is no escrow requirement.

Answer 164

B Requires advance written disclosure to, and written consent from, the client Principal transactions, though they are deemed to be a conflict of interest are permissible if the client receives advance written disclosure from the firm and the client gives prior written consent for each transaction.

Answer 165

C I and III Trust accounts are established by the delivery of a signed trust agreement to the agent along with the normal new account documentation. The key item for the agent is to recognize that recommendations made for such an account must be suitable for the trust beneficiary, not the trustee or the trustee's attorney. It is also critical that the agent closely adheres to the guidelines established in the trust document.

Answer 166

C On the 30th day after filing All registrations of broker-dealers, agents, investment advisers, and investment adviser representatives become effective, unless the Administrator states otherwise, on the 30th day after filing the registration application.

Answer 167

A The broker-dealer must register in California even though it has no place of business there if it wants to conduct business with retail investors who reside there A broker-dealer that has no place of business in the state and only effects transactions with other broker-dealers, institutional investors, or the issuer of the security involved in the transaction does not need to register in that specific state as a broker-dealer. However, whenever doing business with individual retail investors who reside in a state, regardless of whether an office is maintained there or not, the BD must be registered in that state.

Answer 168

A Registered in Nevada and Utah. IARs for federal covered advisers are only required to register in states where they have a place of business. In this case, Nevada. However, if an IAR meets with customers in another state on a regular basis, this could be deemed as having a place of business in the state. In this case, meeting with the client in Utah several times a year, the IAR would need to register in that state as well.

Answer 169

A $100 million The minimum assets under management an investment adviser needs to become a federal covered investment adviser is $100 million. This should not be confused with $110 million under management, which would require an adviser to register with the SEC (federal covered adviser).

Answer 170

B IAs who give advice to 5 or fewer clients in a state within a 12-month time frame The de minimis exemption for investment advisers, which allows the IA to be exempt from registration in a state, is applicable to those who give advice to 5 or fewer (less than 6) clients in a state within a 12-month period and have no office in the state.

Answer 171

C The advertisement is an offer in the state where the newspaper is published if at least 1/3 of the newspaper's circulation is within the state An offer to sell or buy is not made in a state, and is not subject to the Administrator's jurisdiction, if the offer is made in any bona fide newspaper or other publication of general, regular, and paid registration not published in the state. If the offer is in a publication distributed in the state where published and more than 2/3 of its circulation is outside of the state during the past 12 months, it is not an offer in the state where published and is not subject to the Administrator's jurisdiction. Once the publisher has more than 1/3 of the circulation in the state where it is published, the offer is considered an offer in that state and it needs to be registered with the State Administrat

Answer 172

D 60 calendar days When properly filed in accordance with the USA (within 10 business days of a transaction with the client in the new state, or the discovery by the agent of the client’s change in residence, whichever is later), the application allows business to continue uninterrupted for a grace period of 60 calendar days

Answer 173

B An unethical one Note that this act has subjected the IAR to civil, not criminal proceedings. Those acts or practices characterized as misrepresentations that are unintentional are considered unethical under the USA. Unethical acts or practices could subject the perpetrator to civil proceedings only. If an act or practice is characterized as an intentional misrepresentation, under the USA it would be considered fraudulent and subject to criminal proceedings.

Answer 174

B The agent The agent or IAR must determine what information is material and relay that information to the client.

Answer 175

C New hire training Soft-dollar expenditures must provide direct customer benefits. Computer systems, office furniture, and staff training, along with travel expenses, would not directly benefit the customers and are prohibited soft-dollar expenses.

Answer 176

B A janitor who occasionally accepts unsolicited orders at a broker-dealer Be aware of questions that contain "agents in disguise", such as secretaries or janitors who accept unsolicited trades only. Their job title is irrelevant. If a person employed by a broker-dealer is effecting securities transactions with the public, they are an agent. We have no evidence that any of the individuals in the other choices are "accepting" or "effecting" securities transactions, nor do we have evidence that they are supervising those that accept or execute trades (i.e., the partner of the broker-dealer).

Answer 177

C Investment adviser An investment adviser is any person (firm) who provides investment advice for others, directly or indirectly, through analysis, writings, or publications, and charges a separate fee for these services.

Answer 178

C I Under the USA, the agent for the opera singer is the only IA on the list. Remember the ABC test. An IA must provide advice about securities, as a business, and receive compensation for these services. The former insurance agent is providing advice but not about securities. The broker is an agent of a broker-dealer and is excluded from the definition. The market sage is not getting paid for their advice.

Answer 179

C I Under the USA, the agent for the opera singer is the only IA on the list. Remember the ABC test. An IA must provide advice about securities, as a business, and receive compensation for these services. The former insurance agent is providing advice but not about securities. The broker is an agent of a broker-dealer and is excluded from the definition. The market sage is not getting paid for their advice.

Answer 180

D I, II, and IV An adviser must disclose any potential conflict of interest. By not including a payment received from the sale of a particular mutual fund, the firm has omitted a material conflict of interest. It is considered an unethical practice for an adviser to lend money to a client, even with full and fair disclosure. An adviser also fails in its fiduciary obligation to get the best terms and execution for its clients by steering the client towards shares with higher 12b-1 fees, some of which may be passed to the adviser. The adviser caused the client to pay fees it could have avoided. A broker-dealer offering to give something of value to an investment adviser in exchange for the adviser’s transaction business is known as a soft dollar arrangement. This arrangement presents no conflict of interest, as long as the adviser’s clients are the direct beneficiary of this arrangement. By providing a subscription to an online research service, the adviser can now offer better insight and information to its clients.

Answer 181

D An individual who is a silent partner of a broker-dealer A partner of a broker-dealer who does not sell or try to sell securities is not an agent and does not need to register as such. An individual who represents a broker-dealer and sells securities (whether exempt or non-exempt) is defined as an agent. An agent is also a natural person representing (employed by) an issuer when selling its securities to existing employees, partners, or directors if compensated by a commission. A sales assistant who accepts orders must be registered as an agent.

Answer 182

A A primary market transaction In an issuer or primary market transaction, the proceeds of the sale or benefits of the transaction go to the issuer of the security.

Answer 183

B Registration by qualification Registration by qualification is the most complex procedure for registering a new security. Qualification must be used for securities that will not register with the SEC but are required to register with the state, or for a security that is registered in only one state (intrastate security). Filing is another term for notification. The easiest method of securities registration at the state level is notification (filing).

Answer 184

D Retail investors who are residents in that state Even with no offices in a state, broker-dealer registration is required to do business with retail investors who reside in that state. Remember, BDs must register in any state they maintain an office, and/or a retail client resides in the state.

Answer 185

C Investigate, issue subpoenas, call hearings The USA empowers state administrators to conduct public or private investigations, subpoena individuals, issue cease and desist orders, and hold hearings. Only courts have sentencing authority and issue restraining orders or injunctions.

Answer 186

A Provides a set of model securities laws for enactment by states The Uniform Securities Act is a set of model securities laws. The state securities laws exist in conjunction with, not in place of, federal securities laws. Whenever there is a conflict between federal and state securities law, federal law applies. All state securities laws are referred to as blue-sky laws, including those modeled after the Act. The Act regulates securities transactions that occur in whole or in part in a particular state.

Answer 187

A Selling dividends, an unethical and prohibited practice that could subject the RR to civil penalties What is shown here is an unethical and prohibited practice known as selling dividends. This is encouraging investors to purchase securities just prior to the payment of a dividend, implying that the investor will receive an immediate return on capital. When in reality the security’s price will be adjusted downward by the amount of the dividend paid, making the return net even. Additionally, the dividend received is considered taxable income. This practice does not rise to the level of fraud.

Answer 188

C The adviser may earn a specific percentage of total assets under management in the customer's portfolio A contract that specifies that the investment adviser's compensation will be based on the total assets under management is not prohibited. Sharing in a customer's account is prohibited. This includes capital appreciation as well as interest and dividends earned.

Answer 189

C NASAA does not allow IAs or IARs to borrow from friends or family members, but FINRA does On the subject of borrowing or lending, it is considered improper for any agent, IA, or IAR to lend money or securities to customers according to the NASAA. However, on the subject of borrowing only, FINRA does allow borrowing from customers if those customers are friends or family me

Answer 190

A A registered broker-dealer agent in State D who transacts business for a client who lived in State D but relocated to State B 3 months ago An agent for a broker-dealer is not required to register in another state if their customer is temporarily in that state. In addition, if an agent for a broker-dealer transacts business for an existing client who has moved to another state, they can transact business for that customer for up to 60 days while getting registered in the customer's new state of residence. Any individual representing an issuer of an exempt security (such as the CFO selling commercial paper) is excluded from registering with a state.

Answer 191

C An agent agrees to lend money for the purchase of securities to one of their best clients with the understanding that it will be paid back promptly with no interest or any other considerations advantageous to the agent Don’t be misled by the complicated scenarios. It is a prohibited practice to borrow money from a client. However, it is permitted when the client is in the business of lending. Therefore, if the client is a bank (banks are presumed to be in the business of lending) there is no prohibition on borrowing from them. Broker-dealers are allowed to lend cash or securities to customers based on a signed margin agreement.

Answer 192

D Is exempt from registration Unless exempt from registration, an agent must always be registered in a state where the agent’s customer resides. An agent representing a broker-dealer must always be registered in the state where the agent’s customer lives, even if the transaction or securities involved are exempt from state registration requirements.

Answer 193

C I, II, and III Agents may not share directly or indirectly in profits and losses in client accounts without a prior written agreement between the client and the agent and approved by the employing broker-dealer.

Answer 194

D The customer must have given prior written authorization, a principal must have given prior written approval to accept the account and a principal must approve each discretionary transaction promptly after it is executed In order for a discretionary power in a customer’s account to exist, the customer must give prior written approval. The account must also be accepted by the broker-dealer which must be done in writing by a principal. For brokerage accounts, discretionary trades must be approved by a principal promptly after each trade is executed. “Promptly” is generally interrupted to mean no later than the end of the business day on which the trade occurred.

Answer 195

D Well-established corporate issuers Registrations by filing are usually used by large, well-established corporations who have been in business for at least 36 months (3 years) before the offering.

Answer 196

C 30 If the buyer receives a letter of rescission, they must accept the offer within 30 days. If the investor does not accept the offer, they have no legal recourse later.

Answer 197

A Within a reasonable time If an investment adviser is structured as a partnership, its contract must contain a provision stating that it must notify its customers of any change in the membership of the partnership within a reasonable time after the change.

Answer 198

D I and IV A trustee in a trust account is always expected to act as a fiduciary and in accordance with the terms set out in the documents that created the trust. In many cases, the grantor of a trust will include a statement of intent in the trust document to specify how the needs of multiple beneficiaries should be balanced. In the absence of such instructions, the trustee should exercise their own best judgment, but should consider the interests of all beneficiaries in their decisions.

Answer 199

A Performing an arbitrage transaction, which is allowable Buying a security in one market and simultaneously selling it in another market to profit from the price difference between the two markets is known as arbitrage and is allowed. The investor has entered into an arbitrage transaction, which is generally considered good for the market. There is a fine line between arbitrage and wash trades, which are prohibited. In a wash trade, the investor is buying and selling the stock without any change of beneficial ownership. This is done to make it appear that there is activity in the stock, when in fact the buy and sell transactions do not represent "real" buying and selling (trading volume). Arbitrage is different because the investor's motive is clear. They are looking to take advantage of price differences between two marketplaces. When 2 or more parties are involved in a pattern of buying and selling a security merely to give the appearance of active trading, this is known as engaging in matched sales. Where there is usually only one manipulator in a wash trade, matched sales involve two or more conspirators. When manipulative trading involves a series of purchases, or a series of sales, rather than paired buys and sells, the activity is known as painting the tape. This is also prohibited, since the intent is to give the false appearance of a trend in a stock's price and lure other investors into the same trading activity.

Answer 200

C PQRS has violated the USA by stating that the stock was purchased “at the market” when it actually controls the price When a broker-dealer offers to buy or sell a security in a transaction with a customer "at the market," it is implying that there is a competitive marketplace for the security in which the price is set by supply and demand. However, with less heavily traded securities, this might not be the case. In this question, PQRS is the only active participant in the market and is effectively controlling the security's price. Therefore, saying that the transaction was done "at the market" is misleading and fraudulent

Answer 201

B Birth certificate The Customer Identification Program (CIP) allows for several different documents to be used to verify identity. In most cases, they are a form of unexpired government issued photo identification such as a driver’s license, passport, or military ID card. A birth certificate is not an acceptable form of identification.

Answer 202

B Totally revamping an issuer's building decor Irrelevant facts and rumors are not material facts and are not relevant in making decisions on investing. Changes in interior decorating schemes would not be material information.

Answer 203

B The agent The agent or IAR must determine what information is material and relay that information to the client.

Answer 204

D New hire training Soft-dollar expenditures must provide direct customer benefits. Computer systems, office furniture, and staff training, along with travel expenses, would not directly benefit the customers and are prohibited soft-dollar expenses.

Answer 205

D Recommending a speculative investment strategy It is an investment adviser representative or agent's job to give recommendations to their customers. As long as this is done in an honest, ethical way and it is suitable for the customer, it is not unlawful or manipulative. Wash trades, phantom quotes, and creating misleading appearances in the market are all considered manipulative under the Act. A phantom quote would be a fictitious quote, made up for fraudulent purposes.

Answer 206

D This represents a potential conflict of interest, and the broker-dealer must disclose this to its customers This scenario addresses a control relationship. This means that the broker-dealer is somehow affiliated with the issuer of the security in the transaction, such as selling stock in the broker-dealer's parent company to an investor. Since a transaction in a control security presents a conflict of interest, the broker-dealer must disclose the control relationship, at least verbally, prior to the transaction. If the initial disclosure is verbal, there must be a follow-up written disclosure at or before the completion of the transaction.

Answer 207

A Taking and holding client funds or securities if the adviser notifies the State Administrator An investment adviser may only hold client funds or securities if the firm notifies the State Administrator and the State Administrator has not prohibited this action. It is unethical to lend money to customers. An adviser must get the customer's written consent before assigning the customer's contract, and an adviser cannot purchase new computers with soft dollars. Soft-dollar expenditures must have a direct benefit to the client.

Answer 208

C Keep the information to themselves An agent that believes they have nonpublic, material information should only disclose this to their principal or compliance officer. This option is not provided as an answer in this question, however. The best choice of the answers given is that the agent should keep the information to themselves. Remember that the instructions for the exam require you to select the BEST answer.

Answer 209

D It discloses that the contract can be assigned at any time The contract must state that the contract cannot be assigned without the client’s written consent. The IA must have the investment advisory contract in writing, the contract must disclose the length of the contract, and it must disclose the fees and how they are calculated.

Answer 210

B The agent may not honor the client's request The Uniform Securities Act permits the Administrator to require, as a condition of registration of securities in the state, that a prospectus be sent or given to each person to whom an offer is made in accordance with the prospectus delivery requirements of the Securities Act of 1933. This would generally require a prospectus to be given or sent to the customer at or before the completion of the transaction. There is no provision that waives this requirement upon client request.

Answer 211

D I and III The contract must be in writing (I) and may not be assigned without the prior consent of the client (III). Compensation must not be contingent on capital gains for the client's assets (II). Also, advisers may change management without prior approval from clients, although they must notify clients of such changes within a reasonable period of time.

Answer 212

B A broker-dealer with branch offices in a state must be registered in that state Regardless of how many offices a broker-dealer has in a state, as long as there is at least one, the BD must register in that state to do business there. However, if there are no branch offices in the state, the broker-dealer is excluded from registration there if it does business only with other BDs, institutional investors, or the issuer of a security involved in a transaction of those securitie

Answer 213

A III and IV Any person who effects securities transactions with noninstitutional (retail) investors who reside in a state must register as a broker-dealer in that state even if the firm has no place of business in the state. Note that while there is a de minimis exemption for investment advisers, there is none for broker-dealers. Remember, a BD must register in a state as soon as the firm has one retail customer who resides in the state, and/or if they have an office in the state .

Answer 214

B It has no place of business in the state and its only client in the state is an employee pension fund with assets of $15 million An investment adviser with no place of business in a state and whose only clients in the state are institutional investors is still considered an investment adviser in that state, but they are exempt from registration requirements in the state. Once an investment adviser has more than 5 retail customers residing in a specific state, the investment adviser must be registered in the state. An investment adviser must also register in any state where it maintains an office unless registered with the SEC as a federal covered investment adviser.

Answer 215

C I and IV Generally, an investment adviser must register in each state in which it does business. However, if the adviser does not have an office in the state and it only deals with institutional customers, or it has 5 or fewer retail clients within a 12-month period, it is exempt from registering in that state. This question asks when this adviser would need to register, and in Choice IV, it has 6 retail investors, which exceeds the threshold for the exemption.

Answer 216

Serving existing retail customers who are temporarily in the state A securities firm with no office in a state, dealing solely with existing customers who are not residents of the state where the transaction takes place, is excluded from the definition of a broker-dealer, and the firm does not have to register in that state. This is called the retail customer (snowbird) exclusion. Remember, BDs must register in any state they maintain an office,and/or a retail client resides in the state.

Answer 217

D Federal covered advisers are excluded from the definition of IA under the Uniform Securities Act and are not required to register with the state Federal covered advisers are excluded from the definition of investment adviser under the Uniform Securities Act.

Answer 218

D Annual renewal of the agent's license with the Administrator Agents must annually renew their licenses with their State Administrator. They need not maintain continued residence in the state in which they originally registered, however they must register in every state in which they conduct business. Registrations and notice filings expire annually on December 31 unless renewed. An application for renewal requires an annual filing fee

Answer 219

A State A only Regardless of whether the IA firm registers with the state or SEC, if they have an office in the state (in this case, State A) the IAR must be registered in the state. IARs working for federal covered advisers only register in the states where the IAR maintains an office. However, if an IAR meets with customers in another state on a regular basis, this could be deemed as having a place of business in the state which would require registration in that state. IARs working for a state-registered investment adviser must register in all states where the IAR maintains an office and/or has retail customers who reside in that state.

Answer 220

D A class A felony conviction from 7 years ago When registering with a state, an agent must disclose all convictions for felonies and securities-related misdemeanors. If the conviction for a felony or securities-related misdemeanor was within the 10 years preceding the date of registration, the agent will likely be denied registration in the state.

Answer 221

D I, II, III, and IV There are a number of grounds on which the Administrator could deny an application for registration as an agent. This may include: filing an incomplete application or one that contains false or misleading statements, willfully violating or failing to comply with any provision of the USA, or being convicted, within the last 10 years, of any felony or a misdemeanor involving any aspect of the securities business.

Answer 222

B I and III An investment adviser representative is any partner, officer, director, employee, or associate of an investment adviser that is registered, or required to be registered, under the USA; or one who has a place of business in the state and is employed by or associated with a federal covered adviser. An IAR is anyone who: * Makes recommendations or otherwise renders advice regarding securities * Manages accounts or portfolios of clients * Determines which recommendations or advice regarding securities should be given * Solicits, offers or negotiates for the sale of, or sells, investment advisory services * Supervises employees who engage in any of these activities

Answer 223

C A janitor who occasionally accepts unsolicited orders at a broker-dealer Be aware of questions that contain "agents in disguise", such as secretaries or janitors who accept unsolicited trades only. Their job title is irrelevant. If a person employed by a broker-dealer is effecting securities transactions with the public, they are an agent. We have no evidence that any of the individuals in the other choices are "accepting" or "effecting" securities transactions, nor do we have evidence that they are supervising those that accept or execute trades (i.e., the partner of the broker-dealer).

Answer 224

B By December 31st of the current year All persons registered with the Administrator must renew their registrations (and pay a new fee) every year by December 31st.

Answer 225

D Lack of experience Registration may not be denied solely because of lack of experience, as long as the person has the proper training and/or knowledge.

Answer 226

D I and IV An individual representing an issuer in the sale of common stock to its employees for compensation (commission) must be registered as an issuer agent in that state. If the individual representing the issuer did not receive compensation for the issuer employee transactions, then they would be excluded from registering as an agent. In general, sales people that represent BDs must register as agents. Individuals who directly represent issuers in selling exempt securities or engaging in exempt transactions are excluded from the Uniform Securities Act's definition of an agent.

Answer 227

A The adviser fails to disclose its compensation in writing prior to the transaction Investment advisers are permitted to perform agency crosses between two clients if they do not recommend both sides of the transaction. The investment adviser must obtain prior written permission from all customers involved in agency crosses. This permission is often granted in blanket form at the time the account is opened. In addition, firms are required to provide all clients involved in agency crosses with a year-end summary of all the cross transactions executed in their accounts.

Answer 228

B A security The USA's definition of security does not include any insurance or endowment policy or contract under which an insurance company promises to pay a fixed sum of money either in a lump sum or periodically for life or for some other specified period. On the other hand, when cash values or returns are based on the performance of a separate account, such as with variable life, variable universal life, and variable annuities, the instrument is a security.

Answer 229

A City of Atlanta, GA revenue bonds purchased by a resident of Savannah, GA The list of securities exempt under the USA is rather lengthy. The key exemptions include government securities (U.S. government and agency issues, Canadian government, municipal issues, and foreign government securities(must have diplomatic relationship with U.S.), financial institution securities, commercial paper, and exchange-listed securities. Most of these are federal covered securities. One notable exception is that municipal securities purchased by residents of the state in which they were issued are not federally covered but are still exempt from registration under the USA.

Answer 230

A A broker-dealer registered in State B, who processes transactions with several existing retail customers who are in State A on vacation The retail customer exclusion for broker-dealers is also referred to as the snowbird exclusion. A broker-dealer who solely processes transactions for existing customers who are temporarily in another state is not considered a broker-dealer in the other state, and the firm need not register there. Broker-dealers who process transactions for institutional clients in another state are not broker-dealers in the state. However, that is an institutional exclusion and not a snowbird exclusion. Additionally, the snowbird exclusion applies only to broker-dealers, not investment advisers. Remember, a firm that is only providing advice is an investment adviser, not a broker-dealer.

Answer 231

D Applicant's immediate family and business associates not affiliated with the business The applicant does not need to list immediate family or business associates that are not affiliated with the business. When applying with a state, the applicant must disclose their name, address, form of business, and proposed methods of conducting business. Additionally the applicant's qualifications, business history, and financial background must be disclosed. State administrators also require information on a person's registration statement in regard to any administrative orders, injunctions, and convictions. Convictions for misdemeanors pertaining to the securities business, and/or any felony convictions, must also be disclosed on the person's registration statement regardless of time frame.

Answer 232

D Agency capacity When a firm effects transactions for the accounts of others, acting as a middleman in the transaction, that is acting in an agency capacity as a broker. Brokers charge a commission.

Answer 233

B I, II, and IV Customers must be provided with a copy of the adviser's brochure (or ADV Part 2) either 48 hours prior to entering into the advisory contract or at the time the contract is executed. If the IA waits until the time of contract to deliver the brochure, the customer can terminate the contract without penalty within 5 business days, not 10 as stated in this question.

Answer 234

B Either a fine or imprisonment, but not both A person found guilty of willful violations of the USA will be subject to a fine up to $5,000, imprisonment for up to 3 years, or both. The statute of limitations for criminal actions is 5 years from the date of the offense.

Answer 235

D I and II An RR (agent) and a customer can share in profits and losses in the same account. Under the USA, the sharing arrangement does not need to be in proportion to the contributions placed into the account by each owner. Even though under normal circumstances an agent cannot commingle a customer's money with the firm's money, OR the customer's securities with the firm's securities, through 'sharing in profits and losses', the customer and the agent can share the same account. Remember: the agent can never deposit customer money into their personal account.

Answer 236

D Guaranteeing It is prohibited to guarantee a client against loss or to reimburse a client when a loss occurs.

Answer 237

D Recommending a speculative investment strategy It is an investment adviser representative or agent's job to give recommendations to their customers. As long as this is done in an honest, ethical way and it is suitable for the customer, it is not unlawful or manipulative. Wash trades, phantom quotes, and creating misleading appearances in the market are all considered manipulative under the Act. A phantom quote would be a fictitious quote, made up for fraudulent purposes.

Answer 238

D The registration statement being filed is materially complete The registration statement being filed would have to be materially incomplete to cause the Administrator to deny, suspend, revoke, bar, censure, restrict, or limit a person's registration.

Answer 239

C A person who solicits for a commercial paper issuer that has the highest ranking of a national rating organization A person representing (employed by) issuers of specified exempt securities, like commercial paper, is excluded from the definition of an agent. An individual representing a broker-dealer, even if only in exempt securities, is an agent. A sales representative of a broker-dealer or issuer who sells, or offers to sell, securities is an agent. Partners, employees, officers, or directors of broker-dealers involved in selling securities to clients are agents, whether or not they are commissioned or salaried.

Answer 240

A A $35,000 minimum net worth and must file audited balance sheets An investment adviser who has custody of customer funds must have a minimum net worth of $35,000 or must maintain a positive net worth at all times, and it must file an audited balance sheet. Broker-dealers are required to meet minimum net capital requirements, whereas IAs may be required to meet minimum net worth requirements.

Answer 241

A For 1 year after the effective date According to the Uniform Securities Act, once a registration statement for securities is effective, it remains so for 1 year after the effective date or until the offering is complete. The Administrator may require the issuer to keep the registration statement up-to-date, as well as file reports about the progress of the offering. If there are securities remaining unsold after the 1-year period elapses, the issuer may apply to the Administrator for an extension, which may or may not be granted.

Answer 242

A For 1 year after the effective date According to the Uniform Securities Act, once a registration statement for securities is effective, it remains so for 1 year after the effective date or until the offering is complete. The Administrator may require the issuer to keep the registration statement up-to-date, as well as file reports about the progress of the offering. If there are securities remaining unsold after the 1-year period elapses, the issuer may apply to the Administrator for an extension, which may or may not be granted.

Answer 243

D Stating that NOP can get stock for clients "at the market" is misleading since NOP controls the market in the stock When a broker-dealer offers to buy or sell a security in a transaction with a customer ‘at the market,’ it is implying that there is a competitive marketplace for the security in which the price is set by supply and demand. If the broker-dealer giving the quote is the only active participant in the market, and is effectively controlling the security's price, saying that transactions are done ‘at the market’ is fraudulent.

Answer 244

CORRECT! The Administrator is permitted to spot check a firm's records and is not required to provide prior notice of an upcoming inspection. IAs must keep all required records in a readily accessible location for at least 5 years from the end of the fiscal year in which the last entry in the record was made. The most recent 2 years must be kept in the IA's principal office. Broker-dealers retain most records for 3 years, with the first 2 years in an easily accessible location.

Answer 245

D The broker-dealer must register in Arizona Because the customer opened a margin account and is no longer temporarily in the U.S., the broker-dealer loses its exemption and must register if they still want to deal with this customer.

Answer 246

A Within the Administrator's authority If the Administrator discovers or suspects a violation of the Uniform Securities Act, the USA gives the State Securities Administrator broad powers to initiate or conduct investigations in or outside of the Administrator's state.

Answer 247

CORRECT! A deceased individual is not a person under the Act. Persons under the Act are defined as "any legal entity". A person could be a corporation, the U.S. government, a partnership, an oil well trust, and a not-for-profit organization. The Act stipulates that deceased individuals, minors, and individuals who are mentally incompetent are not persons.

Answer 248

B The Administrator may review advertisements for non-exempt securities The Administrator does not write the securities law but, rather, enforces the laws that are created by the legislature. The Administrator has the power to review advertising and sales literature for non-exempt securities and may examine records both in and out of their home state.

Answer 249

C Neither fraudulent nor unethical Surety bonds are generally required only in the case where the adviser exercises discretion or has custody of customer assets; this would be neither fraudulent nor unethical. If a surety bond is not required, there is no reason to disclose to clients that the firm does not have one.

Answer 250

B Informing a customer of an anticipated new public offering Informing a customer of an anticipated new public offering is not a prohibited practice. Soliciting orders for unregistered non-exempt securities, borrowing securities and/or cash from a customer, and exercising a transaction in a nondiscretionary account without the customer's permission are considered prohibited activities under the Act.

Answer 251

D It discloses that the contract can be assigned at any time The contract must state that the contract cannot be assigned without the client’s written consent. The IA must have the investment advisory contract in writing, the contract must disclose the length of the contract, and it must disclose the fees and how they are calculated.

Answer 252

A Serving existing retail customers who are temporarily in the state A securities firm with no office in a state, dealing solely with existing customers who are not residents of the state where the transaction takes place, is excluded from the definition of a broker-dealer, and the firm does not have to register in that state. This is called the retail customer (snowbird) exclusion. Remember, BDs must register in any state they maintain an office,and/or a retail client resides in the state.

Answer 253

B National Securities Markets Improvement Act of 1996 The National Securities Markets Improvement Act of 1996 (NSMIA) was intended to eliminate duplicate registration and regulation of securities and investment advisers. NSMIA created the concept of federal covered IAs and securities. While state administrators may require a notice to be filed and a fee to be paid, they cannot require the securities or advisers to be registered in their state. Federal covered advisers are excluded and federal covered securities are exempt from state registration requirements. However, federal covered advisers and securities are still subject to the antifraud provisions under the USA.

Answer 254

B I, II, and III Investment advisers typically charge a percentage fee based on the value of assets under management. In other cases, the fee is flat or based on an hourly rate. Generally, IAs are prohibited from charging a fee based solely on account appreciation or capital gains generated within the portfolio.

Answer 255

B Paid testimonials without a written agreement Paid testimonials are allowed in advertising for investment advisers if the proper disclosures are made, they are supervised, and there is a written agreement. This does not mention the de minimis compensation exemption and would therefore, require a written agreement.

Answer 256

C Exchanges of securities in connection with non-judicially approved reorganizations A sale is defined as 'a contract or agreement to sell or dispose of a security, or an interest in a security, for value.' The question is asking for the answer choice that is a sale. Bona fide pledges of securities for a loan, stock dividends, and stock splits are not offers or sales. Gifts of stock are not sales unless the gift is an assessable stock. Exchanges of securities in connection with judicially approved reorganizations are not sales. The correct answer choice is a non-judicially approved reorganization, which is a sale.

Answer 257

C Exchanges of securities in connection with non-judicially approved reorganizations A sale is defined as 'a contract or agreement to sell or dispose of a security, or an interest in a security, for value.' The question is asking for the answer choice that is a sale. Bona fide pledges of securities for a loan, stock dividends, and stock splits are not offers or sales. Gifts of stock are not sales unless the gift is an assessable stock. Exchanges of securities in connection with judicially approved reorganizations are not sales. The correct answer choice is a non-judicially approved reorganization, which is a sale.

Answer 258

A soft-dollar arrangement This is a soft-dollar arrangement. Soft dollars may only be used for the purchase of investment-related services, primarily research services, that benefit the client. These services must assist the money manager in the carrying out of its investment decision-making process on behalf of the client. Since these permissible arrangements present a potential conflict of interest, investment advisers must regularly review their soft-dollar arrangements.

Answer 259

B 90 days after the firm's fiscal year end For state-registered investment advisers, the USA requires the firm to file an updated Form ADV with the state within 90 days of the firm's fiscal year end. It may be filed earlier, but the deadline is 90 days after the fiscal year ends.

Answer 260

A The agent's registration is terminated and their license is inactive until they register with another broker-dealer If a broker-dealer loses its registration, the registration for the firm's agents are terminated. The agent’s license will be inactive until the agent becomes associated with another broker-dealer.

Answer 261

D III Good Job! While issuers must meet certain prerequisites to use notification or coordination, any issuer may use registration by qualification. A prerequisite to use notification or coordination is that a registration statement must be filed with the SEC. Since no registration statement will be filed with the SEC, only registration by qualification is available to this issuer.

Answer 262

B Considered imprudent because a single stock portfolio would not align with the expectation that fiduciaries diversify investments The prudent man rule, which does apply to IA’s, is the guideline that fiduciaries must observe in managing client assets. Under the rule, there is the expectation that fiduciaries will diversify investments in order to mitigate risk. Mitigating risk should be done regardless of the client’s risk tolerance. A single security portfolio lacks any diversification and is always considered high risk; imprudent.

Answer 263

A A bank holding $150 million in noninstitutional client assets The federal government and the states have divided the responsibility for regulating investment advisers. In general, an adviser must be registered with either the SEC or with one or more states, but not both. The basis for the federal-state division is usually assets under management (AUM). Advisers with assets of $110 million or more must register with the SEC, while those with assets under $100 million fall under state jurisdiction. Advisers managing between $100 million and $110 million may elect to be regulated by the state(s) in which they conduct business or by the SEC. Advisers to investment companies must always register with the SEC and are, therefore, federal covered. The bank is not a federal covered adviser because banks (as well as trust companies and insurance companies) are excluded from the definition of an investment adviser.

Answer 264

D Attorney, accountant, and trust company Attorneys, accountants, teachers, and engineers whose advice is incidental to their profession are excluded from the definition of investment advisers, as are banks, savings institutions, and trust companies. However, those who receive separate compensation for their investment advice, whether delivered electronically, at a seminar, or through a newsletter's advice for specific client situations, are considered investment advisers, and must register as such.

Answer 265

A The solicitor is required to establish and register as an investment adviser independent of the investment adviser to whom the solicitor refers prospective clients The Uniform Securities Act requires a solicitor to register as an investment adviser representative (IAR), but there is no requirement that a solicitor establish an investment adviser firm (IA). The Investment Advisers Act and USA require that the solicitor provide each prospective client with the adviser’s Form ADV Part 2, a disclosure document regarding the details of the referral arrangement with the solicitor, and the solicitor must obtain a signed and dated acknowledgement that the client did receive Form ADV Part 2 and the disclosure document.

Answer 266

C Immediately Any material changes to the wrap fee brochure must be filed immediately.

Answer 267

B December 31st each year All persons' registrations expire on December 31 each year unless renewed by paying the appropriate fee.

Answer 268

C Firm D, which is located out of state but advises several major insurance companies and pension funds in the state All investment advisers with places of business in the state must register there. If the investment adviser has no office in the state and only deals with institutional investors in the state, they are exempt from registration. For the de minimis exemption, the firm must not have an office in the state and cannot have more than 5 clients in a 12-month period.

Answer 269

C Firm D, which is located out of state but advises several major insurance companies and pension funds in the state All investment advisers with places of business in the state must register there. If the investment adviser has no office in the state and only deals with institutional investors in the state, they are exempt from registration. For the de minimis exemption, the firm must not have an office in the state and cannot have more than 5 clients in a 12-month period.

Answer 270

B I, II, and III According to the Uniform Securities Act, it is unlawful for an investment adviser to enter into an investment advisory contract unless the contract is in writing and discloses: the services to be provided, the term of the contract, the advisory fee, the formula for computing the fee, whether the contract grants discretionary power to the adviser, and that no assignment of the contract may be made by the investment adviser without the consent of the other party to the contract. If the investment adviser is a partnership, it must also disclose that the investment adviser must notify the other party to the contract of any change in the membership of the partnership within a reasonable time after the change. Disclosure must be made of the fact that the IA must not share in customer profits

Answer 271

D It is the IAR who is responsible for notifying the Idaho State Administrator If employed by a federal covered investment adviser, the IAR must notify the Administrator when a registration is being terminated.

Answer 272

C I, III, and IV As an agent (registered representative) of a broker-dealer, they will be required to register with a self-regulatory organization (SRO). The SRO that virtually all RRs will register with is FINRA. In addition, the agent will be required to register in any state in which they conduct securities business with retail customers who reside in the state, so this agent will need to register in States A and B. One common misconception is that registered representatives (agents) are registered with the SEC, but this is not true. The RR's broker-dealer is registered with the SEC, but the individual reps are not.

Answer 273

A An individual that works for BST Advisory Services creating financial plans for compensation Under the USA, any individual who represents a broker-dealer or an issuer when buying or selling securities is referred to as an agent. An agent’s compensation may be based on salary or commission. An individual employed by an investment adviser is an investment adviser representative, not an agent. The head of human resources is an individual who represents an issuer and would be excluded from the definition of agent if they received no compensation specific to those transactions. In this question the individual is compensated and is an agent that must be registered. An individual that represents a broker-dealer must be registered unless an exemption applies, for example if the agent works for an exempt Canadian BD.

Answer 274

C Need not be registered in the state State securities laws are known as blue-sky laws. In addition to registering with the SEC, issuers must be sure that their new offerings are either registered in every state in which they will be sold (called blue-skying the offering) or exempt from registration in those states. An attorney assisting in this process need not register as an IA, IAR, BD, or agent.

Answer 275

A Guaranteed to payment of principal, interest, and dividends The USA defines guaranteed as to payment of principal, interest, or dividends.

Answer 276

B A violation of the USA The Uniform Securities Act clearly identifies this as a misleading, untrue, and unlawful statement and a prohibited business practice in violation of the Act.

Answer 277

B The communication does not include names of specific investment products When broker-dealers, agents, investment advisers, or investment adviser representatives use the internet to distribute information on products and services, this is not considered transacting business in a particular state as long as the internet communications are limited to providing general information and do not involve effecting or attempting to effect securities transactions or rendering personalized advice regarding securities for compensation. Names of specific investment products can be used in this type of communication. A legend must state that the BD, agent, IA, or IAR must be registered or exempt from state registration requirements to transact business in a particular state.

Answer 278

D States R and Q Since this is an offer, the State Administrator in the state where the transaction originated has jurisdiction (State R). The State Administrator in the state in which the offer was directed to and received in (State Q) also has jurisdiction since the offer was both directed to and received in the same state.

Answer 279

D The individual performs investment supervisory services for a firm where providing advice is a substantial part of the firm’s business The professional title "investment counsel" may be used by any adviser that meets 2 criteria or standards; the adviser performs investment supervisory services and providing advice is a substantial part of, or the primary business of the firm. While other special qualifications or registrations may exist, they are not required.

Answer 280

A The due date of the confirmation of the transaction For all transactions that require delivery of a prospectus, such as purchases of IPOs or mutual funds, agents are required to provide each customer with a copy of the prospectus no later than the due date of the confirmation of the transaction.

Answer 281

A 30 days The buyer of a security in an unlawful transaction may not sue the seller if the buyer receives a written offer, while they still own the security, to refund what they paid for the security, plus interest, less any income received from the security, and they fail to accept the offer within 30 days. This is known as a letter of rescission. If the buyer receives a letter of rescission, is not satisfied with the offer, and they no longer own the security, they may not sue unless they reject the offer in writing within 30 days of receipt.

Answer 282

D 15 days The Administrator may summarily (without advance notice) postpone or suspend the effectiveness of a registration statement but then must allow an opportunity for a hearing. The Administrator would immediately notify the applicant, the issuer, and any other person on whose behalf the offering is being made of the postponement or suspension. If one of those notified individuals requests a hearing (in writing), it must be scheduled within 15 days. If the Administrator eventually makes the order permanent, the interested parties must be given the reasons for the order in writi

Answer 283

C Under no circumstances The broker-dealer may never commingle firm funds or securities with customer funds or securities.

Answer 284

C I and IV A trustee in a trust account is always expected to act as a fiduciary and in accordance with the terms set out in the documents that created the trust. In many cases, the grantor of a trust will include a statement of intent in the trust document to specify how the needs of multiple beneficiaries should be balanced. In the absence of such instructions, the trustee should exercise their own best judgment, but should consider the interests of all beneficiaries in their decisions.

Answer 285

D Promptly after the initial transaction in the account It is a violation to execute any transaction in a margin account without securing from the customer a properly executed (signed) written margin agreement promptly after the initial transaction in the account.

Answer 286

C Trustees must select conservative, low risk investments such as those considered investment grade Fiduciaries are not limited to, nor mandated to select low risk or conservative investments under the UPIA. Instead, the UPIA states that high standards of prudence must be applied to any investment, and in the case of trustees, investment decisions should be based upon the needs of the beneficiaries to the trust. All the remaining selections are true regarding their alignment with the UPIA.

Answer 287

B Disclosure of all felonies and misdemeanors within the past 10 years All felonies, but only securities and theft-related misdemeanors, must be disclosed, regardless of timeframe (not solely those in the last 10 years). A state can only deny registration if the felony or securities-related misdemeanor occurred within the last 10 ye

Answer 288

B I and IV An individual representing an issuer in the sale of common stock to its employees for compensation (commission) must be registered as an issuer agent in that state. If the individual representing the issuer did not receive compensation for the issuer employee transactions, then they would be excluded from registering as an agent. In general, sales people that represent BDs must register as agents. Individuals who directly represent issuers in selling exempt securities or engaging in exempt transactions are excluded from the Uniform Securities Act's definition of an agent.

Answer 289

D In most states it will be effective 5 days after filing The filing method of registration is available only to issuers who are currently registered with the SEC and considered federally covered. Coordination is the method by which the issuer's state registration is processed in multiple states in conjunction with its SEC registration, is normally used with IPOs, and registration is effective automatically when the federal registration is effective. 20 days is the cooling-off period for an IPO. The effective date will vary from state to state, but typically it is 5 days after filing.

Answer 290

A I, II, and III An Administrator may not deny, suspend, or revoke a security's registration without at least 2 reasons, one of which must be that the denial, suspension, or revocation is in the public interest. The Administrator may not enter a stop order against an effective registration statement on the basis of a fact that was known when the statement became effective unless action is taken within 30 days of the effective date.

Answer 291

A A commodities futures contract To determine if an instrument meets the definition of a security, it must pass the Howey test. It must be an investment of money, in a common enterprise, with the expectation of profits from the efforts of a third party. The most common securities include stocks, bonds, options, warrants, rights, and investment companies. Some of the odder types you may encounter on your test include interests in farmland, animals, or natural resources, such as oil and gas or gold mines. Futures and commodities are not considered securities under the USA, but options on these instruments (or anything else) are considered to meet the definitio

Answer 292

B City of Atlanta, GA revenue bonds purchased by a resident of Savannah, GA The list of securities exempt under the USA is rather lengthy. The key exemptions include government securities (U.S. government and agency issues, Canadian government, municipal issues, and foreign government securities(must have diplomatic relationship with U.S.), financial institution securities, commercial paper, and exchange-listed securities. Most of these are federal covered securities. One notable exception is that municipal securities purchased by residents of the state in which they were issued are not federally covered but are still exempt from registration under the USA.

Answer 293

C Offerings of securities that are not federal covered securities Common or convertible preferred stock listed and traded on national or regional exchanges or Nasdaq are federal covered securities and are exempt from registration requirements at the state level under the USA. Bonds and other senior securities issued by those exchange-traded companies are also exempt from registration at the state level.

Answer 294

C 10 Under the USA, a private placement may be offered to no more than 10 noninstitutional buyers within 12 months. The seller must believe that the purchasers are buying for investment only, there can be no solicitation or advertising used, and there must be no commissions paid, directly or indirectly. Note that a private placement under Regulation D (federal) limits the number of investors to 99, with a maximum of 35 investors being non-accredited or all investors being qualified purchasers.

Answer 295

B Frequently used when only registering in one state A registration by coordination is frequently used to register a security in several states. With this method, the issuer is completing their SEC registration at the same time as their state registration. Both usually become effective at the same time provided the state registration statement has been on file with the Administrator for at least 10 days.

Answer 296

B I and II Although exempt from registration, commercial paper is still considered a security. American depositary receipts (ADRs) are also considered securities. While options are securities, futures are not. Retirement plans are not securities.

Answer 297

D An offer of an unregistered, non-exempt security by an agent of a broker-dealer An offer of an unregistered, non-exempt security by an agent of a broker-dealer is not an exempt transaction nor is it permitted under the Act. The only time it is acceptable to trade an unregistered, non-exempt security is if the trade was directed by the customer on an unsolicited basis (with proper documentation to support it). Exempt transactions include: * Private placements offered to 10 or fewer retail customers within 12 months and no commission paid * Any bond backed by real estate (mortgage bond) * Transactions between an issuer and an underwriter * Unsolicited, non-issuer transactions through a broker-dealer Since the offer for the unregistered, non-exempt security was solicited by the agent, it is not exempt.

Answer 298

B It is used by companies already registered with the SEC and publicly traded Registrations by filing, also known as notification, are used by well-established corporations that are already registered with the SEC and publicly traded. It is the easiest form of registration and consent to service of process is included. Issuers must have a minimum net worth of $4 million not $1 million.

Answer 299

D For 1 year after the effective date According to the Uniform Securities Act, once a registration statement for securities is effective, it remains so for 1 year after the effective date or until the offering is complete. The Administrator may require the issuer to keep the registration statement up-to-date, as well as file reports about the progress of the offering. If there are securities remaining unsold after the 1-year period elapses, the issuer may apply to the Administrator for an extension, which may or may not be granted.

Answer 300

B II and III Exempt securities, exempt transactions, and federal covered securities are not subject to the advertising filing requirements of the USA. All securities, exempt or not, are subject to the antifraud provisions found within the Act.

Answer 301

C A person with a criminal history of securities fraud An issuer, a broker-dealer, or the person on whose behalf the offering is being made (a non-issuer distribution) may file a registration statement with the Administrator.

Answer 302

A Statement of the issuer's competitiveness A statement of the issuer's competitiveness is not required.

Answer 303

A I, II, and III According to the Uniform Securities Act, it is unlawful for any person to offer or sell any security unless, 1) it is registered under the USA, 2) the security or transaction is exempt under the USA, or 3) it is a federal covered security. Note that unless a security falls within one of these groups, an agent may not sell it in the state.

Answer 304

A The Administrator needs only 1 reason to deny a registration The Administrator might deny a security's registration if they find there is a problem with the issuer or its filing. This denial is sometimes referred to as a stop order. Even if registration is granted, the Administrator could later suspend or revoke the registration if a problem is subsequently discovered. When giving an order to deny, suspend, or revoke registration, the Administrator must give at least 2 reasons, 1 of which must be that the order is in the public interest. In addition, the Administrator must have at least one other reason for the order. Among other things, these grounds may include 1) the filing contains a statement that is false or misleading, 2) unreasonable amounts of underwriting compensation are being paid, and 3) the issuer has failed to pay the proper filing fee.

Answer 305

B Seek an indictment for fraud The Administrator has a number of tools at their disposal to help enforce the Uniform Securities Act. The USA empowers the Administrator to initiate investigations, either inside or outside the state, to determine if any person has violated or is about to violate any provisions of the USA. The Administrator may subpoena witnesses and compel their attendance, the Administrator may issue a cease and desist order against persons engaged in the illegal activities, directing them to stop any further illegal actions, and the Administrator may bring an action in court seeking an injunction to enforce compliance with the Act. The ultimate legal remedies under the USA involve criminal or civil court proceedings. The Administrator cannot seek an indictment because they have no prosecutorial authority.

Answer 306

C II, III, and IV To open a criminal case and, therefore, introduce the possibility of jail time, it must be demonstrated that a willful violation of the Act has occurred. In criminal cases, the maximum penalties under the Uniform Securities Act are a $5,000 fine, 3 years in prison, or both. A person found guilty of violating a rule or order under the USA may not be imprisoned if the individual can prove they had no knowledge of the rule or order.

Answer 307

D States M and N Administrators in States M and N have jurisdiction since the offer originated in State M and the sale was directed to State N and trade was done in State N. The location of the bank is irrelevant.

Answer 308

D Rescission If a broker-dealer learns that one of its agents has engaged in an unlawful transaction, the firm will likely send the affected buyer a letter offering to repurchase the securities at the buyer's original purchase price, plus interest, minus any income (such as dividends or interest) that the customer received while holding the securities. This letter is known as a letter of rescission.

Answer 309

D With or without a prior hearing The State Administrator can issue a cease and desist order, with or without a prior hearing, against the person or persons engaged in the prohibited activities, directing them to cease and desist from further illegal activity.

Answer 310

B I, II, and III An administrator has authority over any sale that originated in their state, was directed into their state, or was accepted in their state. Therefore State A, State B, and State C have potential jurisdiction over this transaction. It is irrelevant where the confirmation is sent.

Answer 311

B II and IV The maximum criminal penalties per violation of the USA are $5,000 and/or up to 3 years in prison. Prison terms may only be imposed for willful violations of the Act

Answer 312

A The Administrator of this state or the agent's state The State Securities Administrator is responsible for administering and enforcing state securities laws. The Administrator has the duty and authority to conduct investigations and subpoena persons in or out of the state. Either one or both administrators may subpoena the agent. The North American Securities Administrators Association does not enforce securities law and, therefore, does not issue subpoenas.

Answer 313

C Immediately file a registration for the security If an agent discovers a sale was made that violates a provision of the USA, they can offer to buy back the securities through a letter or offer of rescission. The investor receives full purchase price plus interest, reasonable attorney fees, minus any investment income.

Answer 314

A 30 days from receipt of the letter When a firm realizes that it has made an unlawful sale, it may offer the customer a letter of rescission. This letter effectively voids the transaction and makes the customer whole. The customer has a maximum of 30 days to respond to the offer. A client who fails to act within this time period will not be able to take action in court. Please note that a firm may not offer a letter of rescission to escape punishment once the Administrator initiates action for a prohibited sale or a civil suit has been initiated.

Answer 315

D If the security is given with or as a bonus to the purchase of anything else A sale is an agreement to dispose of a security for value. Under the USA, the terms offer or sale do not include securities exchanged due to court-approved reorganizations, securities pledged as collateral, and nonassessable securities given as gifts. Any security given with or as a bonus to the purchase of any security (or anything else), is considered to constitute part of the purchase and has been offered and sold for value.

Answer 316

C I, II, and III The State Securities Administrator has jurisdiction over both offers and sales within the Administrator's state. A total of 3 Administrators can have jurisdiction over a sale, including the Administrator in the state where the offer originated, the Administrator in the state where the offer was directed to, and the Administrator in the state where the sale was done. The “deal was closed” is another way to say the transaction occurred in the state.

Answer 317

C Subpoena witnesses The USA gives an administrator the duty and power to subpoena individuals from in or out of the state to testify, produce records, and attend hearings. Attorneys offer legal opinions. Broker-dealers solicit orders. The administrator does not guarantee any customer a profit or avoidance of loss.

Answer 318

D Initiate a criminal investigation Criminal penalties are initiated and imposed by a court, not an investor. In this case the violation was unintentional and does not rise to the level needed to seek a criminal investigation. An investor can seek restitution through a civil suit. A letter of rescission may be offered and accepted prior to the initiation of a civil suit.

AD Banker- Comp Exam - Series 63 Flashcards

(342 cards)