UNIT 16 Checkpoint

A client has a cash account with stock valued at $460,000 and $40,000 in cash and shares a joint account with a spouse that has a market value of $320,000 and $200,000 in cash. How much is the SIPC coverage?

. $500,000 for the cash account and $500,000 for the joint account. SIPC coverage is $500,000 per separate customer with cash coverage not to exceed $250,000. In the single-name account, SIPC provides full coverage, while in the joint account, SIPC covers the full value of the securities, but only $180,000 of the $200,000 in cash. The remaining $20,000 becomes a general debt of the bankrupt broker/dealer.

If one of your customers has been making weekly cash deposits of $6,000 into his account, your firm would likely file a(n) A. SAR B. Form 112 C. FOCUS report D. Form 4

. A. A SAR (suspicious activity report) would likely be filed with FinCEN, a unit of the U.S. Treasury. This report is filed when a transaction or a pattern of transactions is suspicious and a possible indication of money laundering. FinCEN Form 112 is filed for any cash deposit, on a single day, of more than $10,000.

Trading was resumed on DEF stock after a halt following the release of a news item. All of the following would most likely have lowered the price of the stock when trading was resumed EXCEPT A)another corporation tendering for the company's shares B)the CEO resigning over a dispute with the board of directors C)the company filing an offering to sell 30% more shares D)the Justice Department announcing that it opposes the company's merger with another company

. A. Another corporation tendering for the company's shares would tend to increase the price.

Which of the following statements regarding clients not covered by SIPC in a broker/dealer bankruptcy is TRUE? A)They become general creditors. B)They become preferred creditors. C)They lose their investment. D)They become secured creditors.

. A. Any customer claims that SIPC does not cover will result in the customer becoming a general (unsecured) creditor of the company.

At a social gathering, an officer of a publicly traded company confides to his neighbor, a registered representative, that his company will announce a major acquisition in the coming week. Which of the following statements regarding the SEC's insider trading rules is TRUE? A)Neither the officer nor the registered representative is in violation. B)The registered representative is in violation. C)The officer is in violation. D)Both the officer and the registered representative are in violation.

. A. Simply giving someone material, nonpublic information (while imprudent) is not a violation. However, if the information is used to trade for profit or to avoid a loss, both the tipper and the tippee would have violated the law.

Under federal law, stock can be tendered from all of the following accounts EXCEPT A)short margin accounts B)restricted margin accounts C)long margin accounts D)cash accounts

. A. Under the short tender rule, shareholders can only tender stock to the extent of their stock's net long position; stock in a short account is borrowed stock.

Under penny stock rules, what is required for an investor to be considered an established customer?

. At least 3 separate penny stock purchases. Under penny stock rules, investors are established customers if they have deposited funds or securities in an account for at least 1 year prior to the penny stock transaction, or have purchased at least 3 different penny stocks from the same broker/dealer.

According to the Insider Trading and Securities Fraud Enforcement Act, contemporaneous traders are all of the following EXCEPT A)persons granted the right to sue inside traders for damages under the act B)insiders such as corporate employees C)persons who make trades at approximately the same time as inside traders D)noninsiders

. B. According to the Insider Trading and Securities Fraud Enforcement Act of 1988, contemporaneous traders are corporate outsiders who make trades at about the same time as insiders. They are granted the right to sue inside traders for damages sustained.

Under SIPC, when a trustee is appointed, customer claims are filed with the A)Securities Investor Protection Corporation B)court-appointed trustee C)Securities and Exchange Commission D)failed broker/dealer's SRO

. B. Customer claim forms are filed with the trustee.

If a broker/dealer firm is taking out a subordinated loan to help meet its financial requirements, all of the following would be true EXCEPT A)the loan agreement must be in writing B)FINRA and the SEC must be notified no later than 10 days after the loan goes into effect C)its term may not be for less than 1 year D)it must be for a specific dollar amount

. B. FINRA and the SEC must be notified of a subordinated loan no later than 30 days before the loan goes into effect.

Which of the following customer accounts is NOT SIPC-insured? A)JTWROS account with spouse B)TIC account with business partner C)TIC commodities account with son D)Customer margin account

. C SIPC coverage only applies to accounts holding securities; commodities accounts are not covered.

Which of the following is a true statement regarding payment to informants (whistleblowers)? A)Awards are not paid for information regarding securities law violations regardless of the success of any enforcement action taken. B)If an award is paid to a "whistleblower", the amount of the award can not be based on any amount recovered. C)Awards may be paid in connection with original information concerning any violation of securities law that leads to successful enforcement. D)Awards can only be paid for information regarding violations of the Insider Trading Securities Fraud Enforcement Act.

. C. Awards to "whistleblowers" may be paid in connection with original information concerning any violation of securities law including but not limited to violations of the Insider Trading Securities Fraud Enforcement Act. Those awarded may be paid a percentage of the amount collected.

The Trust Indenture Act of 1939 applies to each of the following corporate debt offerings EXCEPT A)nonexempt debt securities B)interstate offerings C)offerings under $50 million D)offerings over $50 million

. C. Corporate debt offerings under $50 million and exempt issues are not subject to the Trust Indenture Act of 1939.

ABC Corp. announces a tender offer for XYZ common stock at $50 per share. All of the following customers can tender their stock to ABC EXCEPT a customer who A)is long XYZ stock in a margin account B)exercises XYZ call options C)borrows XYZ stock D)is long XYZ stock in a cash account

. C. Only customers with long positions in XYZ can tender their shares; SEC rules prohibit borrowing shares to tender those shares.

Under SEC rules, a penny stock is defined as an unlisted, non-Nasdaq security trading at less than A)$2 per share B)$1 per share C)$5 per share D)$2.50 per share

. C. SEC rules define penny stocks as unlisted, non-Nasdaq stocks of less than $5 per share.

Each of the following statements about SIPC are true EXCEPT A)it is a nonprofit membership corporation B)it is funded by broker/dealers C)it is an agency of the U.S. government D)coverage is limited to $500,000 per customer

. C. SIPC is a membership corporation formed to protect investors as of the Securities Investor Protection Act (SIPA) of 1970. It is not an agency of the U.S. government.

The order protection rule which prohibits a trade-through and the minimum increments pricing rule which addresses penny and sub-penny pricing were each enacted under a broad sweeping SEC regulation designed to bring trading and reporting uniformity to US securities markets. This regulation is known as A)The Bank Secrecy Act B)USA (Uniform Securities Act) C)SIPA (Securities Investors Protection Act) D)Regulation NMS (National Market System)

. D. Regulation NMS (National Market System) is the SEC regulation designed to bring trading and reporting uniformity to the US securities markets. Among the rules it encompasses are the order protection rule which prohibits a trade-through and the minimum increments pricing rule which addresses $.01 and sub-penny pricing.

All of the following securities are exempt from the Trust Indenture Act of 1939 EXCEPT A. municipal bonds B. preferred stock C. treasury bonds D. debentures

. D. The Trust Indenture Act of 1939 regulates all corporate debt issues exceeding $50 million. Government and municipal issues are exempt and preferred stock is an equity security.

The Bank Secrecy Act requires broker/dealers to establish internal compliance procedures to detect and prevent money laundering. Three distinct phases of money laundering have been identified. Which of the following is NOT one of those phases? A. layering B. integration C. placement D. qualification

. D. The three distinct phases of money laundering identified by the U.S. Treasury Department under the Bank Secrecy Act are placement, layering, and integration.

Which of the following actions requires a report to be filed with the SEC? A)KLC Corporation changes from a foreign to a domestic supplier for one of its key raw materials. B)An officer at KLC acquires 1,000 shares of the common stock of a competitive firm on the open market. C)KLC is reorganizing its manufacturing operation to take advantage of new technology. D)An officer at KLC sells 1,000 shares of KLC stock on the open market.

. D. A corporation's control persons must report changes in holdings of securities of their own company.

Broker/dealers are required to have written procedures to prevent the misuse of material, nonpublic information by I.employees of the broker/dealer II.associated persons of the broker/dealer III.suppliers to the broker/dealer IV.disinterested parties

. I and II FINRA rules require member firms to establish written supervisory procedures designed to detect and prevent the misuse of inside information by persons affiliated with members.

Under SEC rules regarding penny stocks, which of the following regarding established customers are TRUE? I.They are exempt from the requirement to prepare a suitability statement. II.They are not exempt from the requirement to prepare a suitability statement. III.They are exempt from the disclosure rules. IV.They are not exempt from the disclosure rules.

. I and IV An established customer is one who has effected a non-penny securities transaction or made a deposit of funds or securities into his account at least 1 year prior to the proposed penny stock trade, or has made three purchases of penny stocks on 3 separate days involving 3 separate issues. Established customers are exempt from the suitability statement required by 15(g)9, but are subject to the disclosure rules required by 15(g)2 − 15(g)6.

The Sarbanes-Oxley Act legislation was established to enhance standards for I.Market makers in U.S. exchange listed securities II.Boards of directors of U.S. publicly traded companies III.Public accounting firms IV.Block traders in stocks of U.S. exchange listed securities

. II and III The Sarbanes-Oxley Act of 2002 (SOX) was enacted in response to a number of major corporate and accounting scandals. The legislation established enhanced standards for all U.S. public company boards of directors, management, and public accounting firms.

If XYZ wants to offer 1 million new shares of common stock through an underwriter to investors in three states, which of the following statements are TRUE? I.The offering must only be registered in XYZ's home state. II.XYZ shares can only be sold by registered representatives licensed to sell securities in those states. III.The underwriter must arrange to have tombstones published in each of those states. IV.The offering must be blue-skyed in each of the 3 states in which the issue will be sold.

. II and IV To sell an issue in a state, the broker/dealer, the registered representatives, and the security itself must be registered in that state. Registering an issue in a state is known as blue-skying the issue.

A registered representative (RR) has a client who has moved to another state. To continue doing business for the client, the RR should

. become registered in the state that the client has moved to. Registered representatives must be registered in the states where they do business.