Checkpoint Exam U4
Under federal law, the statute of limitations for civil liability is A) 1 year after discovery or 3 years after the action, whichever is sooner B) 1 year after the discovery of the action C) 2 years after the action D) 2 years after discovery or 3 years after the action, whichever is sooner
A) 1 year after discovery or 3 years after the action, whichever is sooner In the federal regulations, the statute of limitations for a civil action is the sooner of 1 year after discovery or 3 years after the action. Under the USA, it is the sooner of 2 years after discovery or 3 years after the action. U4LO3
According to the Uniform Securities Act, which of the following is NOT an exempt transaction? A) A broker-dealer makes an offer of private placement securities to 15 individual investors within a 30-day period. B) A broker-dealer sells an entirely new issue to 5 bank clients. C) The executor of an individual's estate liquidates individual stocks and invests the proceeds in a money market account at a bank. D) Bonds with a rating below investment grade are sold to the ABC High Yield Bond Fund.
A) A broker-dealer makes an offer of private placement securities to 15 individual investors within a 30-day period. The Uniform Securities Act defines a private placement as an offering made to no more than 10 noninstitutional investors in a 12-month period. If a private placement complies with this restriction, it is an exempt transaction. U4LO3
Under the USA, which of the following types of transactions can be entered into legally with unregistered, nonexempt securities? A) Solicited transactions with individual clients located within the state B) Private placement offered to more than 50 institutional purchasers in the state C) Rights offering to existing shareholders with underwriting compensation of $.05 per share to the soliciting broker-dealers D) Public offering of stock in a new corporation
B) Private placement offered to more than 50 institutional purchasers in the state Private placements involve the sale of nonexempt securities to investors without the need for registration. There is no numerical limit to the number of offers that may be made to institutional buyers. However, offers to noninstitutional buyers are limited to a maximum of 10 in any 12-month period. Rights offerings are only exempt if there is no compensation, and only unsolicited orders are exempt transactions. U4LO3
Under the Uniform Securities Act, which of the following circumstances would exempt a security from registration? I. The security is exempt from registration under the act. II. The transaction in which the security is sold is exempt under the act. A) II only B) Neither I nor II C) I only D) Both I and II
D) Both I and II It is illegal to sell securities that are not registered unless the security or the transaction itself is exempt from state registration requirements. This applies to new issues (primary distributions) and secondary market transactions. U4LO3
The Uniform Securities Act is designed to protect the general public and not restrict investment activities of institutional or professional investors. Any offer or sale to any of the following would be considered exempt from the registration and advertising filing requirements of the USA EXCEPT A) broker-dealers B) banks C) savings institutions D) chief executive officers of companies listed on the NYSE
D) chief executive officers of companies listed on the NYSE Any offer or sale to a bank, savings institution, trust company, insurance company, investment company as defined in the Investment Company Act of 1940, pension or profit-sharing trust, or other financial institution or institutional buyer, or to a broker-dealer, whether the purchaser is acting for itself or in some fiduciary capacity is considered an exempt transaction. Corporate chief executive officers are individual investors under the USA. Transactions in their personal investment accounts are therefore not exempt from the provisions of the act. U4LO3
All of the following are exempt transactions under the USA EXCEPT A) a securities transaction by an executor B) initial sale of shares to in-state residents of a local manufacturing company C) a rescission offer, sale, or purchase D) a sale of common stock by an administrator of an estate, sheriff, marshal, receiver, trustee in bankruptcy, guardian, or conservator
B) initial sale of shares to in-state residents of a local manufacturing company An initial sale of shares to in-state residents is an intrastate initial public offering and must be registered with the state securities Administrator. A securities transaction by an executor, a sale of common stock by an administrator of an estate, sheriff, marshal, receiver, trustee in bankruptcy, guardian, or conservator, or a rescission offer, sale, and purchase are exempt transactions. U4LO3
The Uniform Securities Act requires that a consent to service of process be filed for the registration of I. trustees II. issuers III. investment advisers IV. broker-dealers A) I, II, III, and IV B) I and II C) II and IV D) III and IV
D) III and IV The state securities Administrator has jurisdiction over investment advisers, broker-dealers, and any who are associated with those entities. Issuers don't register; it is their securities that do. The Administrator may have jurisdiction over securities offered for sale by a company in the Administrator's state and generally requires a consent to service of process for a securities registration. U4LO3
All of the following are nonissuer transactions EXCEPT A) Joe Smith sold 100 shares of Apple Computer to his neighbor, Kevin Jones, in a private transaction B) broker-dealer A sold 5,000 shares of Dell Computer from inventory to broker-dealer B C) Monster Insurance Company sold 10,000 shares of IBM to KLM Investment Bankers, Inc., through INSTINET D) Intel sold 10 million shares of its preferred stock in a private placement transaction to a syndicate of five pension funds
D) Intel sold 10 million shares of its preferred stock in a private placement transaction to a syndicate of five pension funds When an issuer sells its own securities, it is an issuer transaction. When someone other than the issuer sells securities, it is a nonissuer transaction. U4LO2
An agent can sell an unregistered security to one of the firm's retail customers under each of the following circumstances EXCEPT A) if the transaction is initiated at the request of the customer B) if the security being purchased is a warrant to purchase stock that is NYSE listed C) if the security being purchased is an exempt security D) if the agent is not registered in the client's state
D) if the agent is not registered in the client's state When engaging in securities transactions with retail clients, agents must always be registered in the state of residence of that client. As long as the agent is properly licensed, if the security being purchased is exempt or it is being purchased in an exempt transaction (such as an unsolicited trade), registration of the security is not required. Federal covered securities, such as those listed on the NYSE, are also exempt from registration. That exemption carries over to warrants and rights issued by that company. U4LO3
The primary purpose of the securities registration requirements of the Uniform Securities Act is to ensure that proper disclosure is made available to potential investors. However, not all securities are required to register. Which of the following qualify for an exemption from registration under the act? A) Common stock issued by life insurance companies authorized to conduct insurance sales in that state B) Equipment trust certificates issued by railroads whose rates are not subject to regulation by a state or federal agency C) Commercial paper with no more than 9 months to maturity that is in 1 of the 3 highest ratings by a nationally recognized rating agency and in a minimum denomination of $10,000 D) Bonds that are obligations of the People's Republic of North Korea
A) Common stock issued by life insurance companies authorized to conduct insurance sales in that state A security issued by a life insurance company issuing stock in a state in which the company is authorized to conduct its insurance business is exempt from registration. Railroads under the jurisdiction of other state or federal regulators carry an exemption from state securities registration for their equipment trust certificates, but if the railroad is not regulated (the case here), the exemption does not apply. U4LO3
Which of the following would be considered an issuer transaction as defined in the Uniform Securities Act? A) Ken, the largest shareholder in ABC Corporation, sells 100,000 shares in a registered secondary transaction. B) In its capacity as a market maker, LMN Securities Co. sells 200 shares of GEMCO common stock to the corporate treasurer of GEMCO, buying for the company's investment account. C) Barb, the largest shareholder in XYZ Corporation, purchases an additional 50,000 shares on the NYSE. D) GEMCO, traded on the Nasdaq Stock Market, sells 5,000 shares of its stock to LMN Securities Co., a registered market maker in GEMCO stock. The stock was donated to GEMCO by a former officer of the firm.
D) GEMCO, traded on the Nasdaq Stock Market, sells 5,000 shares of its stock to LMN Securities Co., a registered market maker in GEMCO stock. The stock was donated to GEMCO by a former officer of the firm. An issuer transaction is one in which the issuer receives the proceeds of the sale. When GEMCO sold those donated shares to the market maker, the proceeds were received by the issuer (GEMCO). When stockholders sell their shares, they are the ones who receive the money, not the issuer. Purchases are never considered issuer transactions because the money is going out, not coming in. U4LO2
All of the following statements are consistent with the Uniform Securities Act EXCEPT A) a security for which a registration statement is filed under the Securities Act of 1933 may simultaneously register with the state by the procedure known as registration by coordination B) state Administrators do not require consent to service of process to be submitted with notice filings for covered securities C) any security may be registered with the state by the procedure known as registration by qualification D) state Administrators may require federal covered investment companies to file documents with the Administrator using a procedure known as notice filing
B) state Administrators do not require consent to service of process to be submitted with notice filings for covered securities The Administrator will require the filing of a consent to service of process with any securities registration. If required by the Administrator, notice filing is the procedure followed by federal covered securities. Any security may be registered by qualification, and coordination is the simultaneous registration with the SEC and the states. U4LO3
A transactional exemption would be available under the Uniform Securities Act when an agent for a broker-dealer A) receives an unsolicited order from a client to purchase heating oil contracts B) sells a large block of unregistered nonexempt security to an individual who meets the definition of an accredited investor C) sells a retail client $10,000 of U.S. Treasury bonds D) sells a large block of unregistered nonexempt security to an insurance company that is not authorized to do business in this state
D) sells a large block of unregistered nonexempt security to an insurance company that is not authorized to do business in this state The sale of a security to an institution, such as an insurance company, is considered an exempt transaction. The fact that the company is not authorized to do business in the state only means that its securities would not be exempt, but that does not change the fact that this is a sale to an institution and is, therefore, exempt. The term accredited investor is meaningless here, only institutions qualify for exempt treatment, not rich people. The T-bonds are an exempt security, but the sale to a retail client is not an exempt transaction. Heating oil contracts are a commodity, not a security. U4LO3
