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Flashcards in Incorrect Answer Feedback Deck (133):
1

The maximum conviction for violating the Uniform Securities Act is a jail sentence of ____ years and a fine of ______

3 years and $5000 per violation

2

In order to give advise to an employee benefits plan outside of your state of registration, the plan must have at least ________ in AUM

$1m

3

Pending lawsuits are required on Form ADV Part 2 T/F

False, they are not required

4

Unsolicited orders are considered ____ transactions

Exempt

5

An administrator, when suspecting that a violation has occurred or is about to occur, can

- issue a cease and desist, with or without a prior hearing
- bring action to obtain an injunction
- seek a court order requiring the alleged violator to make restitution with other

6

Savings and loans associations organized under _____ law can issue exempt securities, while savings and loans under ______ law can only issue exempt securities if authorized to do so in that state

federal , state

7

Does the state administrator ever approve securities?

NO

8

Are customer complaints required to be submitted to the state Administrator?

NO, only to principal at firm

9

An officer of an issuer who sells the issuer's nonexempt securities to the public is considered an agent and must register. T/F

True

10

An officer of an issuer who sells the issuer's securities to employees without receiving compensation is considered an agent and must register. T/F

False, not if to employees and no comp

11

There is no time limit associated with a cease and desist order. T/F

True, no time limit

12

An IA is only required to disclose his research sources to a client if they use the research of a _______ as their presentation to the client

3rd party research as the presentation to a client

13

Securities issued by a federal savings and loan are exempt under the USA. T/F

True

14

Securities issue by a bank are exempt under the USA. T/F

True

15

Securities issued by a bank holding company are exempt under the USA. T/F

False

16

A muni is federally covered if sold outside of the state, if sold in the state it is _____ federally covered

NOT

17

You may split commissions as long as you get the proper written approval. T/F

True and must also be a registered agent

18

A BD operating on the premise of a bank would have to make certain disclosures in an advertisement unless it was _________

a radio spot of 30 seconds or less

19

A private placement under the USA is considered exempt when directed at no more than ______ within _______

10 non-institutional investors within 12 months

20

The Administrator may subpoena witnesses or documents. T/F

True

21

A pension fund manager who manages more than _______ is eligible to register with the SEC.

$200m AUM

22

A solicitation is considered to have occurred even if the client ________

does not act on the solicitation

23

Assignment of a majority interest in an IA company's stock is considered to be the same as assignment of client _____

contracts. this is prohibited

24

Changes in the location of customer assets held in custody must be reported ______

promptly

25

The NSMIA preempts ______ registration of covered securities.

State. State admins may not impose registration requirements on securities that are subject to federal regulation

26

Registration with multiple BDs is permitted if the BDs are _________ or an ________ is made

if BDs are affiliated or under indirect common ownership, or an exception is made by the Administrator

27

The administrator informs the IA/Agent when his/her registration is effective. T/F

False. The Admin does not have any contact with an IA or agent, the firm will tell them once effective

28

Past performance is not required in a client contract. T/F

True

29

An agent can be asked to post a surety bond. T/F

True. Agents, BDs and IAs can be asked to post surety bonds. BDs and IAs also have net worth requirements

30

Some states prohibit registration with multiple ________

broker dealers

31

There are only three non "persons" for the purposes of the exam:

people who are dead, incompetent or minors. All other individuals, entities, corporations, etc are considered people. It is a very very broad definition

32

A BD cannot also be a(n) ________

agent

33

Agents _____ share in the profit/losses of a customer account while IAs __________

Agents can share, IAs cannot share

34

Minimum capital requirements (net worth requirements) can be held for ______ & _________

BDs and IAs, but not agents or IARs

35

An accusation of law violations is ground for suspending an agent's registration. T/F

False. Cannot suspend based solely on an accusation. Can suspend for convictions, injunctions and lack of supervision

36

A gift of stock (or a security) as a bonus that comes along with a purchase is considered ______

an offer or a sale. counts as a purchase if it comes as a bonus to a purchase.

37

Stock splits, bona fide gifts and bona fide pledges or loans made with no purpose of evading the USA are ___________

not considered sales or offers. if trying to evade the act then yes, would be considered sale or offer

38

An agent may determine _______ without discretionary authority, but may not change the ___________

price and timing without discretionary authority, but cannot change the amount, type of security, etc that the customer instructed

39

The term guaranteed can refer to ____, _____ or _____

principal, interest or dividends

40

The Admin can define practices as unethical even if they are not included in the USA. T/F

True, they have authority to do so and violating the Admin ethical rules are prohibited under the USA

41

The consent to service of process is filed with the original application only, and then becomes a permanent part of renewal applications. T/F

True, only needs to be filed with original application.

42

The consent to service of process allows the Admin to ____________

exercise the power of attorney on behalf of the registrant

43

IARs are _____ automatically registered when they become employed by an IA

NOT, they have to file for registration, pay the fee and consent to service of process

44

Can you compare a money market fund to a savings fund?

NO, expressly prohibited

45

Is an IA specifically excluded from the definition of a BD?

NO, they could also have to be registered as a BD

46

Is a firm's research considered to be insider information or nonpublic information? Could you contact a client about recently published research even if it had not been disclosed to the public yet?

Yes you could. Research by the firm is not considered inside or nonpublic information and is fine to share immediately.

47

For an agent to share in the p&l of a customer account, must have written approval from client and the BD. Is there a requirement for how long the customer has had the account??

NO, there is no time limit for the account in order for the agent to share in the p&l

48

Can an agent have custody over client assets? Can they have discretion?

They CANNOT have custody but they CAN have discretion (if have discretion, may be required to post a surety bond)

49

An Admin may start an investigation before a violation has occurred and can subpoena witnesses living outside the state. T/F

True

50

Advice from an IA or IAR may be given ______ or ______

written or orally.

51

When an agent resigns from one BD and goes to work for another, who must inform the Admin of the change?

Both BDs and the Agent

52

How long does a registered person have to appeal any disciplinary findings by the state Admin?

60 days

53

A consent to service to process (which gives Admin power of attorney) also means that a registrant will be bound by any legal action or subpoena served on the Admin as if ________

it had been served on the registrant

54

A consent to service of process is NOT required for renewal applications. T/F

TRUE, exam will try to trip you up on this point by including it in an answer choice where it is not needed

55

Does the Admin approve custodial accounts?

NO

56

Unless there is a specific exception, fees for an IA based on a share of _______ in an account are prohibited

capital gains or losses

57

An Admin, at the request of a registrant, can hold ________

private hearings, but the registrant cannot demand one

58

Registration for a successor firm may be made even if the firm is not ______ when the registration is filed

in existence

59

Two agents of a BD work together in soliciting business and agree to split commissions. Is this permitted?

Yes, no need to audit their financials

60

Private placements are exempt securities. T/F

FALSE, they are exempt TRANSACTIONS. Exam will throw this one in the mix on an exempt securities question

61

Even if all clients are exempt, an IA or IAR (even if federally covered) needs to register in a state where it has any ______

place of business

62

A muni is a federally covered security unless sold where only where?

In its own state

63

Does the actual sale of a security for value constitute an offer to sell?

NO, this constitutes an actual sale (as do contracts of sale, contracts to sell, or any disposition of a security for value)

64

A federally covered security that wants to register in an individual state would do so by what process?

Notice filing

65

An Admin from any state where an offer is _____, _____ or _____ has jurisdiction over that offer

made, directed or accepted

66

Can an agent effect a transaction not recorded on the BDs books with advance written approval from the BD?

Yes. If no approval it is considered selling away

67

An agent cannot borrow money from a client unless that client is in the ___________

business of lending money

68

An IA or IAR is not permitted to borrow money from a client unless that client is:

- a BD
- an affiliate of the IA
- a lending institution

69

An IA or IAR may not lend money to a client unless:

- the firm is a lending institution
- is an affiliate of the IA

70

Agents may not borrow money or loan money to customers. Only exception to borrow money is if they borrow money from

- a lending institution that is also a client

71

BDs are not prohibited from _____ or ______ to/from clients

lending or borrowing, but must comply with margin and lending rules

72

A BD does not receive comp for investment advise but one of their agents does on the side. Who needs to register with the Admin as an investment adviser?

Just the agent, the BD does not have to do this unless the firm receives comp for advise

73

If an IAR leaves a state registered IA, does the IA need to notify the Admin? What is the IA is federally covered, who informs Admin in that case?

In the case of a state registered, IA, the IA informs the Admin. If federally covered, it is responsibility of the IAR to inform the Admin

74

If an IA has custody over client assets, they must arrange for a _______ annually by an __________

must arrange for a surprise audit annually by an independent advisor

75

As long as there are no more than _____ subscribers to a pre-organization certificate, the transaction is _____

as long as no more than 10 subscribers, the transaction is exempt. Also requires that no subscribers can pay any consideration and no commission was paid.

76

Are the solicitation of tender offers by corporations or exchange of shares in corporate reorgs considered sales?

NO

77

Gifts, whether legal or not, are not considered an offer. T/F

True

78

An IAR cannot earn commissions on the sales of recommended securities unless registered as a(n) ______

agent

79

The three requirements for a preorganization subscription to qualify as exempt are:

- no commission may be paid for soliciting potential subscribers
- there may be no more than 10 subscribers
- no payment may be made by any subscriber

80

An offer is NOT made when a newspaper is circulated but not _______ in the state, or if it is published in the state but has more than _______ of its circulation outside of the state

published, more than 2/3 of its circulation outside the state

81

Intrastate offerings would have to register using ________ filing

qualification

82

Open-end investment company shares would be filed using ________ filing

notice

83

Insolvency is a cause to _______ an agent's license

revoke

84

Agents must be registered in every state where they _____ or _____ securities

offer or sell

85

A transaction between a corporation and its shareholders is considered exempt if no _________

consideration is paid

86

An Admin may delegate an officer to _______

serve subpoenas

87

If a client goes off to college for a year (and doesn't have to change his state of residence), an agent may conduct business with that person __________

as normal

88

Does the Admin have the power to impose fines for violations of the USA?

NO, the courts do

89

Injunctions can only be issued by ________

a court, not the Admin

90

The Admin cannot revoke exemptions for ________

federally covered securities

91

"Sale" (interchangeable with "sell") is any ________

- contract to sell or contract of sale
- any disposition of a security or interest in a security
- any exchange of a security for value

92

A state Admin _____ has jurisdiction over a securities offering made in a bona fide newspaper published out of state.

NEVER. Only has jurisdiction if paper is published in his state, EXCEPT when 2/3 or more of paper's circulation is out of state

93

Is an investment contract a security?

YES

94

When employed by a federally registered IA, an IAR only needs to register in states where ________

they have a place of business.
- NO DE MINIMIS RULE for federally covered advisers - only when have a place of business in that state

95

When employed by a state registered IA, an IAR only needs to register in states where they ________

- have a place of business
- are not covered by the de minimis rule

96

When a radio or TV broadcast originates in one state and is received in another state, it is only considered to be an offer in _______

the state of origination

97

In general, the application for registration can require information about ________, requirement to ________, pass _____________, or place ____________

past disciplinary actions, required to pay a fee, pass an exam, and could be required to place an ad in the local newspaper

98

A "trustee" in an exempt transaction is limited to a trustee of what?

the USA limits it to a trustee of a bankruptcy to be considered exempt. A trustee of an irrevocable trust (or anything else for that matter) would not be an exempt transactor

99

The Admin may enforce subpoenas in another state if the alleged violation would also be __________

a violation in their state as well

100

An individual who, while acting on behalf of an issuer, sells certain exempt securities (such as US gov't securities) is _____________

not required to register as an agent

101

Under the USA, once a registration statement has become effective it can be amended to ____________,, but cannot be amended to ____________

increase the number of shares in the offering, but cannot amend the offering price or any form of compensation

102

Do the advertising and sales literature filing requirements for the Admin apply to an exempt security?

NO, but it is not exempt from the antifraud provisions of the act

103

A registration under Qualification is effective for ________, unless ___________

valid for 1 year unless issuer has some unsold shares (in which case it can be extended until shares are sold)

104

Foreign gov't issued securities are not __________

federally covered securities

105

A face amount certificate registered under the Investment Company Act of 1940 is a ___________

federally covered security

106

No person may be imprisoned for a violation of the USA if they can prove they ____________

had no knowledge of the rule or order

107

No indictment can be returned on a violation of the USA later than _____________ after the alleged violation

5 years

108

Registration by qualification is effective _____________

when the Admin says so

109

Section 15 of the Securities Exchange Act of 1934 sets out the minimum __________

capital requirements for BDs

110

Performance-based fees are not allowed with an IA or IAR unless the client meets certain financials standards, which are:

- at least $2mm net worth
- or a minimum of at least $1mm in AUM with the adviser

111

The Admin has a maximum of ______ after termination/withdrawal to initiate any disciplinary actions

1 year

112

Is an unsolicited transaction involving a nonexempt security required to file advertising and sales literature with the Admin?

NO, because the transaction is exempt. However, a solicited transaction with a nonexempt security WOULD have to file.

113

Does an Admin have jurisdiction over a TV or Radio ad coming from another state?

NO, does if coming from their state

114

The Admin is legally endowed with the power to administer _______

oaths

115

A rights offering is an exempt transaction only if no ______________

compensation was paid to solicit orders

116

A letter or mass mailing that offers a security for sale from another state falls under the jurisdiction of the Admin ____________

in the state where the offer is made (and I'm sure the Admin from the state where offer was sent from also has jurisdiction)

117

A violation of any state or federal securities law within the last ________ years is grounds for denial, suspension, or revocation of registration by order

10 years

118

Are there limits (upper or lower) on the size of institutional orders?

NO, although they typically trade in big blocks

119

Securities issued by or guaranteed by an insurance company are exempt from _________, except for __________ products

state registration, except for variable annuities which are nonexempt

120

If someone was convicted of a non-security related misdemeanor 9 years ago but is registering in a state where that same act would have been a felony, can the registration be denied?

NO, the offense does not show up as a felony on his background check and it doesn't matter that the state he is registering in has a different penalty for the same offense.

121

What exemptions does the Admin have the power to revoke?

- may deny or revoke the exemption granted to a nonprofit organization or investment contracts issued by an employee benefits plan
- may revoke any transactions exemption

122

What exemptions may the Admin NOT revoke?

- securities issued or guaranteed by any bank organized under the laws of any state

123

Transactions by certain fiduciaries are considered exempt from registration. The fiduciaries mentioned are:

- executor, administrator, sheriff, marshal, receiver, trustee in bankruptcy, guardian, or conservator

124

Transactions by a bona fide ___________ are considered exempt

pledgee

125

If someone in State A makes an offer to buy based on an ad made by radio/TV broadcast from State B, the Admin from State A only has jurisdiction once _________

the firm from State B accepts the offer to buy from the person in State A

126

Under registration by coordination, the Admin may require than the security be deposited in ________ and the proceeds impounded until the issuer receives _________

in escrow, impounded until issuer receives a specified amount

127

The Admin may by order permit ___________ of certain items of information or documents from a registration statement.

omission

128

Offers by mail directed to persons in other states are considered to have been made in the other state, if received where originally ________

addressed. Can't be forwarded from original address

129

"Securities" include:

- stocks, bonds, notes, certificates of interest in any profit-sharing agreement or participation plan, preorganization certificates or subscription agreements, certificates of deposit for a security, evidence of indebtedness, warrants, rights, options, variable annuities, commodity options multi-level distributorships

130

"Securities" DOES NOT include:

- insurance contracts, endowments with fixed benefits, fixed annuities, Keogh or IRA plans, written confirmations of sale, futures contracts, real estate held as a personal residence, currencies, precious metals, collectibles

131

If 3 out of 5 partners leave a partnership during the year, does the firm need to notify clients to the change in ownership or ask permission to have client contracts assigned to a surviving entity?

Need to ask for permission to reassign contracts to a surviving entity. If majority of partners leave the entity is dissolved and a new one needs to be created

132

Form ADV Part 2 (the brochure) must be delivered to clients _______

annually

133

Substantial prepayment of fees is considered to be more than $_______, _____ or more months in advance

more than $500, 6 or more months in advance