Flashcards in Incorrect Answer Feedback Deck (133):
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
In order to give advise to an employee benefits plan outside of your state of registration, the plan must have at least ________ in AUM
Pending lawsuits are required on Form ADV Part 2 T/F
False, they are not required
Unsolicited orders are considered ____ transactions
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
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
Does the state administrator ever approve securities?
Are customer complaints required to be submitted to the state Administrator?
NO, only to principal at firm
An officer of an issuer who sells the issuer's nonexempt securities to the public is considered an agent and must register. T/F
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
There is no time limit associated with a cease and desist order. T/F
True, no time limit
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
Securities issued by a federal savings and loan are exempt under the USA. T/F
Securities issue by a bank are exempt under the USA. T/F
Securities issued by a bank holding company are exempt under the USA. T/F
A muni is federally covered if sold outside of the state, if sold in the state it is _____ federally covered
You may split commissions as long as you get the proper written approval. T/F
True and must also be a registered agent
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
A private placement under the USA is considered exempt when directed at no more than ______ within _______
10 non-institutional investors within 12 months
The Administrator may subpoena witnesses or documents. T/F
A pension fund manager who manages more than _______ is eligible to register with the SEC.
A solicitation is considered to have occurred even if the client ________
does not act on the solicitation
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
Changes in the location of customer assets held in custody must be reported ______
The NSMIA preempts ______ registration of covered securities.
State. State admins may not impose registration requirements on securities that are subject to federal regulation
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
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
Past performance is not required in a client contract. T/F
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
Some states prohibit registration with multiple ________
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
A BD cannot also be a(n) ________
Agents _____ share in the profit/losses of a customer account while IAs __________
Agents can share, IAs cannot share
Minimum capital requirements (net worth requirements) can be held for ______ & _________
BDs and IAs, but not agents or IARs
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
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.
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
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
The term guaranteed can refer to ____, _____ or _____
principal, interest or dividends
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
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.
The consent to service of process allows the Admin to ____________
exercise the power of attorney on behalf of the registrant
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
Can you compare a money market fund to a savings fund?
NO, expressly prohibited
Is an IA specifically excluded from the definition of a BD?
NO, they could also have to be registered as a BD
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.
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
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)
An Admin may start an investigation before a violation has occurred and can subpoena witnesses living outside the state. T/F
Advice from an IA or IAR may be given ______ or ______
written or orally.
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
How long does a registered person have to appeal any disciplinary findings by the state Admin?
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
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
Does the Admin approve custodial accounts?
Unless there is a specific exception, fees for an IA based on a share of _______ in an account are prohibited
capital gains or losses
An Admin, at the request of a registrant, can hold ________
private hearings, but the registrant cannot demand one
Registration for a successor firm may be made even if the firm is not ______ when the registration is filed
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
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
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
A muni is a federally covered security unless sold where only where?
In its own state
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)
A federally covered security that wants to register in an individual state would do so by what process?
An Admin from any state where an offer is _____, _____ or _____ has jurisdiction over that offer
made, directed or accepted
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
An agent cannot borrow money from a client unless that client is in the ___________
business of lending money
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
An IA or IAR may not lend money to a client unless:
- the firm is a lending institution
- is an affiliate of the IA
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
BDs are not prohibited from _____ or ______ to/from clients
lending or borrowing, but must comply with margin and lending rules
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
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
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
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.
Are the solicitation of tender offers by corporations or exchange of shares in corporate reorgs considered sales?
Gifts, whether legal or not, are not considered an offer. T/F
An IAR cannot earn commissions on the sales of recommended securities unless registered as a(n) ______
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
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
Intrastate offerings would have to register using ________ filing
Open-end investment company shares would be filed using ________ filing
Insolvency is a cause to _______ an agent's license
Agents must be registered in every state where they _____ or _____ securities
offer or sell
A transaction between a corporation and its shareholders is considered exempt if no _________
consideration is paid
An Admin may delegate an officer to _______
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 __________
Does the Admin have the power to impose fines for violations of the USA?
NO, the courts do
Injunctions can only be issued by ________
a court, not the Admin
The Admin cannot revoke exemptions for ________
federally covered securities
"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
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
Is an investment contract a security?
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
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
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
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
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
The Admin may enforce subpoenas in another state if the alleged violation would also be __________
a violation in their state as well
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
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
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
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)
Foreign gov't issued securities are not __________
federally covered securities
A face amount certificate registered under the Investment Company Act of 1940 is a ___________
federally covered security
No person may be imprisoned for a violation of the USA if they can prove they ____________
had no knowledge of the rule or order
No indictment can be returned on a violation of the USA later than _____________ after the alleged violation
Registration by qualification is effective _____________
when the Admin says so
Section 15 of the Securities Exchange Act of 1934 sets out the minimum __________
capital requirements for BDs
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
The Admin has a maximum of ______ after termination/withdrawal to initiate any disciplinary actions
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.
Does an Admin have jurisdiction over a TV or Radio ad coming from another state?
NO, does if coming from their state
The Admin is legally endowed with the power to administer _______
A rights offering is an exempt transaction only if no ______________
compensation was paid to solicit orders
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)
A violation of any state or federal securities law within the last ________ years is grounds for denial, suspension, or revocation of registration by order
Are there limits (upper or lower) on the size of institutional orders?
NO, although they typically trade in big blocks
Securities issued by or guaranteed by an insurance company are exempt from _________, except for __________ products
state registration, except for variable annuities which are nonexempt
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.
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
What exemptions may the Admin NOT revoke?
- securities issued or guaranteed by any bank organized under the laws of any state
Transactions by certain fiduciaries are considered exempt from registration. The fiduciaries mentioned are:
- executor, administrator, sheriff, marshal, receiver, trustee in bankruptcy, guardian, or conservator
Transactions by a bona fide ___________ are considered exempt
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
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
The Admin may by order permit ___________ of certain items of information or documents from a registration statement.
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
- 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
"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
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
Form ADV Part 2 (the brochure) must be delivered to clients _______