S65 - 2/2

Charles Horse is the CEO of Farrier and Nail, a new broker-dealer applying for registration in a number of states. In completing the application, which of the following events in the CEO's life must be disclosed? A) Any charge, conviction, or guilty plea to a misdemeanor involving investments or an investment-related business or bribery, forgery, extortion, or similar offenses B) Any charge, conviction, or guilty plea to a misdemeanor involving investments or an investment-related business or bribery, forgery, extortion, or similar offenses, limited to the past 10 years C) Any charge, conviction, or guilty plea to a misdemeanor involving failure to pay child support or alimony or similar domestic offenses D) Financial condition and history including a recent credit report

A) Any charge, conviction, or guilty plea to a misdemeanor involving investments or an investment-related business or bribery, forgery, extortion, or similar offenses Any felony must be disclosed. Any misdemeanor that involves investments and many other financial issues, such as those in the correct answer, require disclosure. Note that it is not only convictions, but charges as well. There is no time limit on the disclosures; the question is "have you ever . . . ?" The 10-year limit applies to statutory (automatic) disqualification. LO 2.c

An individual walks into the office of a broker-dealer wishing to open a new account. Which of the following is not required on the new account form? A) Marital status B) Physical address C) Name of employer D) Citizenship

A) Marital status Although most new account forms do ask for marital status, it is not a required item, whereas the other choices are. LO 6.e

Which of the following items is not required under the customer identification program (CIP)? A) Sex B) Date of birth C) Physical address D) Visa details for noncitizens

A) Sex The CIP does not ask if the account holder is male or female. LO 6.e

Under the Uniform Securities Act, a person who has passed the appropriate NASAA examination but whose license has not yet been issued can participate in A) giving a seminar on the benefits of whole life insurance versus term insurance. B) prospecting for new clients in person. C) prospecting for new clients by mail. D) accepting unsolicited orders.

A) giving a seminar on the benefits of whole life insurance versus term insurance. A person who has passed the NASAA exam cannot transact securities business until the Administrator notifies the employer that the registration is effective. Insurance, unless variable, is not a security. LO 2.g

An applicant for registration as an IAR in this state was convicted four years ago of a nonfinancially related crime in another state. Under that state's laws, the crime was a misdemeanor, but under this state's laws, it is a felony. When viewing this IAR's application, the Administrator will A) treat the crime as a nonfinancial misdemeanor. B) treat the crime as any felony. C) censure the investment adviser for even thinking of employing this individual. D) treat the crime as a nonfinancial felony.

A) treat the crime as a nonfinancial misdemeanor. Even though the crime is a felony in the state where registration is being sought, the applicant's record shows a misdemeanor; therefore, this individual would not be subject to statutory disqualification. LO 5.b

Burgeoning Capital Associates (BCA) is a broker-dealer specializing in assisting corporations and municipalities with raising funds through the issuance of equity or debt securities. BCA has places of business in States A, B, and C. Great Organic Products (GOP), a corporation domiciled in State D, wishes to borrow $25 million to purchase new equipment. GOP approaches BCA, who suggests a 20-year debenture. GOP agrees and BCA purchases the entire issue with a view to reselling the securities to its retail customers. Based on the Uniform Securities Act, BCA A) is a broker-dealer in State D. B) is not a broker-dealer in State D. C) is a broker-dealer in State D unless sales are confined to residents of State D. D) must employ agents registered in State D in order to be able to make the purchase.

B) is not a broker-dealer in State D. One of the exclusions from the definition of a broker-dealer in the state is when the BD has no place of business in the state and its only clients in the state are issuers of the securities the BD is buying. When BCA resells the GOP debentures, it will be selling them to its customers in States A, B, and C, where the BD is registered. LO 2.b

The federal act that essentially eliminated the dual system of state and federal registration of certain investment advisers is A) the Dual Registration Elimination Act of 2001. B) the National Securities Markets Improvement Act of 1996. C) the Securities and Exchange Act of 1934. D) the Uniform Securities Act of 1956.

B) the National Securities Markets Improvement Act of 1996. It is the NSMIA, passed in 1996, that created the category of federal covered investment adviser—an adviser that is not required to register at the state level. The USA is not federal law and the Securities and Exchange Act established regulation of exchanges. There is no Dual Registration Elimination Act. LO 1.a

In general, the Uniform Securities Act requires broker-dealers to keep most records for A) five years with the first two in an easily accessible location. B) three years with the first two in an easily accessible location. C) three years with the first year in an easily accessible location. D) five years with the first three in an easily accessible location.

B) three years with the first two in an easily accessible location. The general recordkeeping requirement for broker-dealers is three years. The first two of those, the records must be in an easily accessible location. LO 2.c

Which of the following entities would not be considered issuers of exempt securities under the Uniform Securities Act? A) U.S. Treasury B) City of Calgary, Alberta C) City of Cancun, Mexico D) State of Michigan

C) City of Cancun, Mexico Foreign national governments, such as that of Mexico, with whom the United States has diplomatic relations, but not their political subdivisions, such as any city in Mexico, are considered issuers of exempt securities. The United States or any of its agencies, such as Fannie Mae, or any state, Canadian province, or political subdivision thereof, is considered an issuer of exempt securities. LO 4.e

Under the Uniform Securities Act, which of the following statements regarding investigations conducted by the Administrator are true? I. Information regarding violations must be kept confidential. II. Investigations may be conducted across state lines. III. The Administrator may obtain a court order to have a receiver appointed over a violator's assets. A) I and III B) I, II, and III C) II and III D) I and II

C) II and III The Administrator is not restricted to her state's boundaries. If appropriate, the Administrator may apply to a court of competent jurisdiction to have a receiver appointed over the assets of a suspected violator. The Administrator is empowered to publish information regarding violations. LO 5.b

One way in which an investment adviser acting in the capacity of an agent in a transaction with a client differs from a broker-dealer performing the same task is that the investment adviser A) shall notify the Administrator of its capacity in the proposed transaction. B) may not charge a commission on the transaction C) shall obtain client consent before completion of the transaction D) shall disclose the agency capacity before the transaction

C) shall obtain client consent before completion of the transaction In order to act as an agent (or principal) in a trade with an advisory client, there are two requirements: Client receives full written disclosure as to the capacity in which the adviser proposes to act Consent of the client (oral or written) Both of these are required before the completion of the transaction. LO 7.d

The SEC's Customer Protection Rule is found in A) the Investment Advisers Act of 1940. B) the Uniform Securities Act. C) the Securities Exchange Act of 1934. D) the Securities Act of 1933.

C) the Securities Exchange Act of 1934. Rule 15c3-3, the Customer Protection Rule, is found in the Securities Exchange Act of 1934. It certainly would not be in the USA—that is state law only. LO 8.a

In a margin account, broker-dealers lend money to clients to enable them to leverage their investments. The account document that is evidence of the debtor-creditor relationship is A) the hypothecation agreement. B) the loan consent agreement. C) the credit agreement. D) the IOU agreement.

C) the credit agreement. The credit agreement, sometimes simply referred to as the margin agreement, is the written agreement between the client and the broker-dealer (BD) evidencing the loan. The loan consent agreement is the optional portion of the account documentation that allows the BD to lend out the client's margin securities. LO 6.e

Which of the following would be included in the Uniform Securities Act's definition of institution? A) An individual meeting the accredited investor requirements B) An individual meeting the qualified client requirements C) A corporation whose stock is listed on the New York Stock Exchange D) An employee benefit plan with assets of $1 million

D) An employee benefit plan with assets of $1 million Included in the definition of institution is an employee benefit plan, such as a pension or profit-sharing plan, with assets of at least $1 million. No individual, regardless of wealth or sophistication, is defined as an institution by the USA. We would need to know more about the NYSE-listed company before we could label it an institution. LO 1.a

There is an exclusion from the Uniform Securities Act's definition of agent for those individuals representing certain issuers in the sale of their securities. That exclusion would apply to individuals representing A) a savings and loan association organized under the laws of any state and authorized to do business in this state. B) a credit union organized and supervised under the laws of this state. C) an insurance company organized under the laws of any state and authorized to do business in this state. D) a savings institution organized and supervised under the laws of any state.

D) a savings institution organized and supervised under the laws of any state. The securities issued by all of these entities are exempt from registration under the provisions of the Uniform Securities Act. However, the only one included in the list of those where individuals representing the issuer are not agents is the savings institution. Please check your LEM for the complete list. LO 2.f

A federal covered investment adviser is a person A) registered with the North American Securities Administrators Association (NASAA). B) registered under the Uniform Securities Act. C) exempt from regulation under the Securities Exchange Act of 1934. D) registered, or excluded from the definition of investment adviser, under the Investment Advisers Act of 1940.

D) registered, or excluded from the definition of investment adviser, under the Investment Advisers Act of 1940. The term federal covered investment adviser refers to a natural person or entity registered under the Investment Advisers Act of 1940 or excluded from the definition under that act. A person registered under the Investment Advisers Act of 1940 is exempt from state registration or licensing requirements of state securities Administrators under the NSMIA and the Uniform Securities Act. Federal covered investment advisers are not exempt from the antifraud provisions of the USA. Investment advisers, whether state-registered or federal covered, do not register with NASAA. LO 3.b

Under the Uniform Securities Act, the term agent refers to individuals who act on behalf of a broker-dealer or issuer in effecting securities transactions. Which of the following individuals are not included in the definition of an agent? I. A lawyer acting on behalf of an issuer in preparing documents describing the issuance of nonexempt securities II. A lawyer acting on behalf of a broker-dealer who prepares documents describing the sales or purchase of securities to the general public III. A partner or officer of a broker-dealer whose only securities activity is the purchase of shares of an issuer for his personal investment account IV. An officer of an issuer who sells shares of the issuer's stock to employees without receiving any special compensation

I, II, III, and IV An agent is described in the Uniform Securities Act as an individual, other than a broker-dealer or issuer, who represents a BD or issuer in effecting transactions in securities. The lawyer is not engaged in effecting securities transactions on behalf of the issuer or BD. Therefore, the lawyer is not considered an agent subject to regulation by the Uniform Securities Act. A partner (or anyone else) of a securities firm making a personal investment is not an agent. An officer of an issuer not receiving any compensation for sales of the issuer's stock to employees is not an agent under the USA. LO 2.f