Unit 8
Securities exempt under the Uniform Securities Act are exempt from which of these? I. Registration requirements II. Antifraud provisions of state securities laws III. Sales and advertising literature filing A) I and III B) I and II C) II and III D) I, II, and III
A) I and III An exempt security is exempt from the registration requirements and the provisions that require the filing of advertising and sales literature. Exempt securities are never exempt from the antifraud provisions of the act.
Under the National Securities Markets Improvement Act of 1996 (NSMIA), investment companies registered under the Investment Company Act of 1940 are required to register their securities A) at the federal level only. B) at the state level only. C) as exempt securities, at neither state nor federal levels. D) at both state and federal levels.
A) at the federal level only. The NSMIA requires that the SEC, rather than individual states, assume responsibility for the registration and regulation of federal registered mutual funds and other investment companies. Thus, these federal registered investment companies are no longer required to register at the state level; however, they will likely have to pay state filing fees by going through the notice filing procedure.
XYZ Brick Company wishes to raise capital by issuing some securities in its home state. The CEO of the company feels that registration with the Administrator is unnecessary because the issue is exempt. Should XYZ be served with a court order, the burden of proving its issue is exempt is on the: A) company. B) court. C) Administrator. D) CEO.
A) company. In any case where there is a question as to the legality of a specific exemption, the burden of proof is always on the party requesting the exemption (the company, not the CEO).
The acronym SPAC stands for A) special purpose acquisition company. B) senior partner authorization certificate. C) supervisory principal account certification. D) special premium asset corporation.
A) special purpose acquisition company. SPAC refers to a special purpose acquisition company. An SPAC is a shell company that is formed to raise capital through an IPO for the purpose of acquiring a private company or business to be identified after the IPO.
Which of the following is not defined as a security under the Uniform Securities Act? A) Unsecured debentures sold in a private placement only to accredited investors B) A Roth IRA C) An investment in a managed pool of rental condominiums D) Bills, notes, and bonds issued by the U.S. Treasury
B) A Roth IRA An investment in an individual condominium used as a residence is not a security. However, an interest in the rental income from a group of condos, where the rent is pooled, is a security under the USA. While the sale of the debentures in this case is an exempt transaction, the debentures are securities. Treasury bills, notes, and bonds are securities, although they are exempt from registration under the USA. A Roth IRA is not a security. Securities may be put in an IRA, but the IRA is not a security. The key to questions like this is to remember those things that are not securities.
Securities of a nonexempt corporate issuer that are not registered with the SEC may only be registered with the Administrator in which of the following ways? A) Notification B) Qualification C) Condemnation D) Coordination
B) Qualification Securities of a nonexempt corporate issuer that do not have a federal registration must be registered with the Administrator by qualifying with the Administrator. This process is called registration by qualification.
Under the registration provisions of the Uniform Securities Act, it is unlawful for an agent in the state to sell XYZ securities unless A) XYZ is a nonregistered, nonexempt security. B) XYZ is a federal covered security. C) both the agent and XYZ are nonexempt and nonregistered. D) the agent is a nonregistered, nonexempt person.
B) XYZ is a federal covered security. If XYZ is a federal covered security, it is not required to register with the state. Nonexempt securities and nonexempt persons must be registered to be sold (securities) or to do business (persons).
Under the Securities Act of 1933, commercial paper is exempt from the prospectus delivery requirements or registration, unless its maturity is more than how many months? A) 6 months B) 3 months C) 9 months D) 12 months
C) 9 months For exemption under the Securities Act of 1933, commercial paper must mature in nine months or less.
As referred to in the NSMIA, the term "federal covered security" would apply to: I. preferred stock in the XYZ Corporation whose common stock is listed on the NYSE. II. common stock in ABCD, Inc., a stock traded on the OTC Link. III. Springfield, Illinois, municipal bonds sold to a resident of Springfield, Illinois. IV. Springfield, Illinois, municipal bonds sold to a resident of Springfield, Missouri. A) II and III. B) III and IV. C) I and IV. D) I and II.
C) I and IV. Any security equal or senior to one listed on the NYSE is a federal covered security. Municipal bonds are a federal covered security except in their state of issuance. OTC Link and OTC Bulletin Board securities are not considered federal covered.
A transactional exemption would be offered when a sale is made by A) a broker-dealer. B) an investment adviser. C) a sheriff. D) an attorney as an incidental part of her legal practice.
C) a sheriff. Among the list of exempt transactions are sales made by a sheriff or marshal. It is possible that the attorney could be acting in the role of a fiduciary, and if so, the transaction would be exempt. From a test-taking standpoint, if you have to read something into an answer to make it correct, as we just did with the attorney, don't do it; go for the straightforward choice.
XYZ Corporation is registering a new issue of common stock. A final prospectus must be delivered within the statutory time limits to A) any person solicited by a registered agent. B) any person who is employed by the issuer. C) any person who purchases shares of the issue. D) any person who has submitted an indication of interest.
C) any person who purchases shares of the issue. Under both the Securities Act of 1933 and the Uniform Securities Act, a prospectus must be given to any purchaser of a new issue of common stock. Under federal law, the time limit is no later than completion of the trade. Under state law, the prospectus has to be delivered prior to the sale, not the offer. Those solicited by an agent will generally received the red herring (preliminary) prospectus, not the final prospectus. And those who receive the red herring may submit an indication of interest. Those turning in an indication of interest are required to receive a final (effective) prospectus only if they decide to purchase.
Which of the following does not meet the USA's definition of an exempt transaction? A) Transactions by an executor of an estate B) An unsolicited sale of an OTCQB C) Transactions with an investment company registered under the Investment Company Act of 1940 D) An agent selling shares of an IPO listed on the NYSE to an individual customer
D) An agent selling shares of an IPO listed on the NYSE to an individual customer Explanation Transactions by a fiduciary, such as the executor of an estate, are included in the definition of an exempt transaction, as are transactions with certain institutional clients like investment companies and insurance companies. The OTC Link is a medium for the trading of highly speculative, thinly capitalized issues. Because the order is unsolicited, the transaction is exempt. The sale of a new issue of stock to an individual client would not be an exempt transaction, regardless of where the stock is traded. It is important to distinguish between an exempt transaction and an exempt security.
As defined in the NSMIA, which of these are federal covered securities? I. Open-end investment companies registered under the Investment Company Act of 1940 II. Closed-end investment companies registered under the Investment Company Act of 1940 that trade on the OTC Bulletin Board III. Bonds listed on the OTC Link where the company's common stock trades on Nasdaq IV. Bonds issued by the Province of Ontario A) I and II B) III and IV C) I, II, III, and IV D) I, II, and III
D) I, II, and III Under the NSMIA, federal covered securities include all investment companies registered under the Investment Company Act of 1940, regardless of where they trade. Any stock listed on Nasdaq is federal covered, and that makes any security equal to or senior (like their bonds) also federal covered, regardless of where they trade. Canadian government and municipal securities are not federal covered (although, under the Uniform Securities Act, they are exempt securities).
Each of the following persons is able to issue securities except A) a partnership B) a credit union C) a corporation D) an individual
D) an individual Explanation Individuals (natural persons) cannot issue securities. You can't sell stock in yourself.
Under the Uniform Securities Act, a private placement is considered an exempt transaction if: A) the sale is unsolicited. B) the security is rated in the top three grades by a recognized rating agency. C) no payment is made with any purchase. D) the number of noninstitutional offers is limited to a maximum of 10 in any 12-month period.
D) the number of noninstitutional offers is limited to a maximum of 10 in any 12-month period. Explanation The transaction exemption available to private placements requires that no more than 10 offers be made in any 12-month period to noninstitutional (retail) purchasers. Whether individual or institutional, payment is made, but commissions may be paid only on institutional sales.
A customer requests information on a new mutual fund and asks her agent to circle the important information in the prospectus and information he thinks will be of special interest to her. This is permitted A) if approved by a principal B) if accompanied by an unmarked prospectus C) without restriction D) under no circumstances
D) under no circumstances Explanation The prospectus is a legal document and may not be altered.
Under the Uniform Securities Act, all of the following issues would be exempt from registration except A) stock issued by an insurance company not offering policies in this state. B) bonds issued by the City of New Orleans. C) stock issued by a savings and loan association authorized to do business in this state. D) an investment contract issued in connection with an employee stock purchase plan.
A) stock issued by an insurance company not offering policies in this state. Had the insurance company been authorized to do business in this state, its securities offering would be exempt.
Under the Regulation D, Rule 506(b) private placement offering exemption, which of the following statements is true? A) The issue may be sold to an unlimited number of nonaccredited investors. B) The issuer can use an online questionnaire to qualify potential investors. C) The exemption is forfeited if there are any sales to nonaccredited investors. D) The rule allows general solicitations but no advertising.
B) The issuer can use an online questionnaire to qualify potential investors. Rule 506(b) permits a maximum of 35 nonaccredited investors and an unlimited number of accredited investors. The questionnaire is used by the issuer to determine the status of the potential investor. It is Rule 506(c) that permits general solicitation and advertising and requires that all investors be accredited.
The Uniform Securities Act would consider which of the following insurance products to be a security? A) Modified endowment life insurance B) Variable life insurance C) Mortgage life insurance D) Fixed annuity
B) Variable life insurance The key is the word variable. Insurance products are excluded from the definition of a security unless the word variable is part of the description. So, variable life and variable annuities are securities—the rest are not.
A discussion referring to blue-sky laws would include all of the following except A) a state securities law that grants state securities Administrators the power to deny or revoke a broker-dealer's or an agent's registration within its state. B) the Securities Act of 1933 and Securities Exchange Act of 1934. C) state laws that are designed to protect the public against fraud in securities sales within a state. D) forms requiring issuers selling securities in the state to comply with state securities laws.
B) the Securities Act of 1933 and Securities Exchange Act of 1934. Blue-sky laws are state securities laws. The Securities Act of 1933 and the Securities Exchange Act of 1934 are federal securities laws.
Which of the following can issue stock? A) A state B) The U.S. Treasury C) A corporation D) A city
C) A corporation Corporations issue stock. Federal and state governments, including municipalities can issue debt securities, but not equity securities. Even though the Savings Bonds advertisements read, "Take stock in America, buy U.S. Savings Bonds," that is a fiction because you can't buy stock in a government and, of course, buying bonds is lending money.
Which of the following statements regarding the differences between Rule 506(b) and Rule 506(c) of Regulation D of the Securities Act of 1933 are true? I. Rule 506(c) offerings can be advertised, while Rule 506(b) offerings cannot. II. Rule 506(c) offerings are limited to 35 nonaccredited investors, while Rule 506(b) offerings do not have a limit. III. The bad actor provisions only apply to Rule 506(c) offerings. IV. Rule 506(c) offerings are limited exclusively to accredited investors, while nonaccredited investors can participate in Rule 506(b) offerings. A) III and IV B) II and III C) I and IV D) I and II
C) I and IV As long as the offering is limited exclusively to accredited investors, Rule 506(c) offerings may be publicly advertised; Rule 506(b) offerings can never be advertised. The limit of 35 nonaccredited investors applies to Rule 506(b); there is no limit on the number of accredited investors for either rule. Both rules are subject to the bad actor provisions.
Which of the following securities are exempt from registration at the state level? I. Bonds issued by the American Red Cross II. U.S. Treasury bonds III. American Advisers Unit Investment Trust IV. Common stock in AAA Commercial Bank, member of the FDIC A) I, II, and III B) I and II C) I, II, III, and IV D) II and III
C) I, II, III, and IV Securities offered by nonprofit organizations, the U.S. government, or investment companies registered under the Investment Company Act of 1940, as well as securities issued by commercial banks, are exempt from registration with the states under the Uniform Securities Act and the NSMIA.
Which of the following statements regarding the antifraud provisions of the Uniform Securities Act (USA) is true? A) The only securities exempt from the provisions are those issued by national governments or political subdivisions of countries that maintain diplomatic relations with the United States. B) The only securities exempt from the provisions are those that are properly registered under blue-sky laws. C) No securities are exempt from the antifraud provisions of the act. D) Exempt securities are not subject to the antifraud provisions of the USA.
C) No securities are exempt from the antifraud provisions of the act. Neither exempt nor nonexempt securities are ever exempt from the USA's antifraud provisions.
Which of the following is not included in the definition of a security in the Uniform Securities Act (USA)? A) A preorganization certificate B) A variable annuity C) Commercial paper issued with an eight-month maturity D) A $100,000 whole life insurance policy
D) A $100,000 whole life insurance policy Explanation Life insurance and fixed annuities are not listed as securities under the USA, while their variable counterparts are. It is best to concentrate on learning the few things that are not securities.
Which of the following securities is most likely to register by qualification in the state of Virginia? A) An offering of common stock by a Virginia-based corporation to residents of Virginia and the Carolinas B) An offering of common stock by a Virginia-based corporation that will be offered on a nationwide basis C) An offering of common stock by a Virginia-based corporation that will be simultaneously registered at the federal level D) An offering of common stock by a Virginia-based corporation to Virginia residents only
D) An offering of common stock by a Virginia-based corporation to Virginia residents only Explanation Although any issuer may register its securities at the state level by qualification, this cumbersome means of registration is mainly used in conjunction with intrastate (single state) offerings. If a security is offered by a corporation beyond its own home state, the issuer must register with the SEC at the federal level. Registration by qualification, while permitted, would be an unlikely choice.
A transactional exemption would be offered when a sale is made by A) a broker-dealer. B) an attorney as an incidental part of her legal practice. C) an investment adviser. D) a sheriff.
D) a sheriff. Among the list of exempt transactions are sales made by a sheriff or marshal. It is possible that the attorney could be acting in the role of a fiduciary, and if so, the transaction would be exempt. From a test-taking standpoint, if you have to read something into an answer to make it correct, as we just did with the attorney, don't do it; go for the straightforward choice.
An exemption from state registration is granted under the specific authority of the Uniform Securities Act to securities issued by which of the following entities? I. State of Georgia II. City of London, Ontario III. City of London, England IV. Kapco Income Fund, an open-end investment company registered with the SEC A) I and II B) I, II, III, and IV C) I, II, and III D) I, II, and IV
A) I and II Any state, Canadian province, or political subdivision thereof is considered an issuer of exempt securities. The exemption also applies to securities issued by foreign governments with whom the United States has diplomatic relations—but not their political subdivisions, such as the City of London, England. Although securities issued by investment companies registered with the SEC are exempt from state registration, the authority for that exemption is found in the NSMIA of 1996 (federal covered securities) rather than the Uniform Securities Act.
Under the Securities Act of 1933, which of the following are exempt securities? I. Securities issued by the U.S. government, government agencies, and any state or municipality II. Any security issued by a religious, educational, charitable, or not-for-profit institution III. Any security issued by a federal or state bank, savings and loan association, building and loan association, or similar institution IV. Any interest in a railroad equipment trust A) I, II, III, and IV B) I, II, and III C) I and III D) II and IV
A) I, II, III, and IV Most of the securities exempt from registration and prospectus delivery requirements in the Securities Act of 1933 are also exempt under the Uniform Securities Act. Securities exempt under the Securities Act of 1933 include government issues, commercial paper, securities issued or guaranteed by financial institutions, regulated common carrier issues, and nonprofit charitable or religious institutions. Three securities are exempt under the Uniform Securities Act and not exempt under the Securities Act of 1933: Stocks and bonds issued by insurance companies Securities issued by foreign governments Securities listed on certain exchanges not exempt under the Securities Act of 1933
Which of the following is an exempt security under the Uniform Securities Act? A) Negotiable certificates of deposit with $100,000 denominations. B) Shares of a U.S.-based insurance company not authorized to sell policies in that particular state. C) Commercial paper maturing in 12 months. D) Common stock traded on the London Stock Exchange.
A) Negotiable certificates of deposit with $100,000 denominations. A negotiable certificate of deposit issued by a bank is an exempt security. Insurance company shares are nonexempt if the issuer is not authorized to do business in that particular state. While debt securities issued by the United Kingdom are exempt, corporate securities issued by British companies are not. Commercial paper loses its exemption if the maturity is longer than 270 days.
Which of the following is defined as a security under the Uniform Securities Act? A) A guaranteed, lump-sum payment to a beneficiary B) An investment contract C) Commodity futures contracts D) Fixed, guaranteed payments made for life or for a specified period
B) An investment contract As a result of the Howey decision, investment contracts are defined as (and often serve as a synonym for) a security under the Uniform Securities Act. A guaranteed, lump-sum payment to a beneficiary is an endowment policy excluded from the definition of a security. Fixed, guaranteed payments made for life or for a specified period are fixed annuity contracts not defined as securities. Commodity futures contracts and the commodities themselves are not securities.
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) Equipment trust certificates issued by railroads whose rates are not subject to regulation by a state or federal agency B) Common stock issued by life insurance companies authorized to conduct insurance sales in that state C) Bonds that are obligations of the People's Republic of North Korea D) 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
B) 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. The commercial paper would qualify if the denomination was $50,000 instead of $10,000. The exemption for foreign government securities only applies to those countries with which the United States maintains diplomatic relations. At the time of this writing, North Korea is on a very short list of countries who
The registration requirements of the Securities Act of 1933 would not apply to which of the following? A) Stocks listed on the New York Stock Exchange B) Fixed annuities and other fixed insurance contracts C) Stocks and bonds issued by insurance companies D) Securities issued by foreign governments with whom the United States has diplomatic relations
B) Fixed annuities and other fixed insurance contracts Although federal covered securities, such as those listed on the NYSE, and securities issued by insurance companies and foreign governments are exempt under the Uniform Securities Act, they are not exempt under the Securities Act of 1933. The registration requirements never apply to non-security products, such as fixed annuities.
Which of the following are federal covered securities? I. A security quoted on the Nasdaq Stock Market II. Shares of an investment company registered under the Investment Company Act of 1940 III. An offering in a security exempt from registration under the Securities Act of 1933 IV. A security that has a federally imposed exemption from state securities registration A) I and IV B) I, II, and IV C) III and IV D) I and II
B) I, II, and IV Any Nasdaq security, shares of a registered investment company, a security that has a federally imposed exemption from state securities registration, and a security traded on a regulated exchange are all federal covered securities. Please note that the question is asking to identify federal covered securities. An offering is not a security; it is an attempt to sell.
Under which of the following conditions may an agent sell an unregistered nonexempt security? A) Only to a noninstitutional client B) If the order was unsolicited C) Never D) When the broker-dealer employing the agent has no office in the state
B) If the order was unsolicited Agents may accept unsolicited orders from clients, institutional or not, in unregistered nonexempt securities. If the transaction is with an institutional client, it can be solicited. In the case of unsolicited orders, the Administrator may demand written acknowledgment from the client that, in fact, the order was unsolicited.
Which of the following statements is not true? A) Federal covered securities include securities listed on national exchanges. B) Federal covered securities include those registered under the Investment Company Act of 1940. C) Transaction exemptions must be established before each transaction. D) Exempt securities must reestablish their exemptions at least annually.
D) Exempt securities must reestablish their exemptions at least annually. Explanation Exempt securities need not reestablish their exemptions annually or otherwise. Exempt securities are exempt because their issuers are exempt, while the basis for an exemption for a transaction must be established before each transaction. Neither the exempt security nor the transaction exemptions are mutually exclusive, and a security or transaction may qualify for two or more of these exemptions. The term federal covered securities includes registered investment companies as well as securities listed on national exchanges.
The U.S. Supreme Court case resulting in the decision that an investment contract is a security is the A) Golub case B) Steiner case C) Muller case D) Howey case
D) Howey case Explanation It was the Howey case in 1946 where the decision ruled that an investment contract meeting the 4 prongs: (1) an investment of money, (2) into a common enterprise, (3) with the expectation of profit, and (4) due to the managerial efforts of others, is a security.
As used in the Uniform Securities Act, the term institutional investor would not include A) savings institutions. B) employee benefit plans with assets of at least $1 million. C) investment companies. D) individuals qualifying as accredited investors.
D) individuals qualifying as accredited investors. Explanation Institutional investors include banks, savings institutions, insurance and investment companies, and employee benefit plans. Although each of these is included in the term accredited investor, that term, as used in federal law (the term is not found in the USA), also includes certain individuals, and they would never be considered institutional investors under the USA.
When making a sales presentation to a prospective client, an agent of a broker-dealer would not be exempt from the anti-fraud provisions of the Uniform Securities Act if the product being offered was a A) forex contract B) federal covered security C) futures contract D) fixed annuity
B) federal covered security The anti-fraud provisions of the Uniform Securities Act apply whenever an offer or sale is made of a security. The only one of these choices that is a security is the federal covered security. Although federal covered securities are exempt from the registration requirements of the Act, they are not exempt from the anti-fraud statutes.
Following the publication of a tombstone advertisement relating to an issue undergoing registration with SEC, an agent of a broker/dealer receives a call from a client who expresses the desire to purchase 100 shares at the best available price. The agent is permitted to: A) send a preliminary prospectus. B) submit a pending order. C) send in-house research. D) send published articles about the issuer.
A) send a preliminary prospectus. During the cooling-off period of an initial public offering, an agent may respond to an inquiry by providing the customer with a preliminary prospectus. No other advertising or research can be sent.
A client of a broker-dealer calls his agent and submits an order to purchase 1,000 shares of a Chilean silver mining company. As the order ticket is being prepared, the agent notices that this is a nonexempt, unregistered stock. The agent should A) wait for firm approval before processing the order. B) continue to process the order because this is an exempt transaction. C) continue to process the order because this is an exempt security. D) inform the client that no orders for this stock may be accepted until it is properly registered in the state.
B) continue to process the order because this is an exempt transaction. Because the client initiated the process, this is an unsolicited order. As such, it is included in the USA's definition of exempt transaction. Even when the security is nonexempt, registration is not required when the transaction is exempt. Therefore, this order may be taken as placed.
Under the Uniform Securities Act, before a corporation can issue a security in a state, that security must be A) exempt from registration in other states in which it is issued. B) registered in one other state and with the SEC. C) registered with the SEC and in the state of issue. D) registered in the state or exempt from registration in the state.
D) registered in the state or exempt from registration in the state. Explanation Before issuing a security in a state, the issuer must either register the security in the state or be exempt from registration under the Uniform Securities Act.
In which of the following situations did an agent commit fraud? A) On review of his files, an agent discovered he had sold a nonexempt, unregistered security to a retail client. B) An agent knowingly sold a nonexempt, nonregistered security to a retail client who could well afford the risk involved. C) A client claims an agent sold him unsuitable securities. D) An agent sold an excellent growth company to a client by omitting immaterial information during the discussion, so as not to distract the client from purchasing a suitable security.
B) An agent knowingly sold a nonexempt, nonregistered security to a retail client who could well afford the risk involved. Fraud requires the intent to deceive. The agent knowingly deceived the client by selling unregistered securities, therefore committing a securities fraud. An agent is not required to discuss all information, only that which is material information. The term retail client refers to individual or noninstitutional clients.
All of the following must be specified in the state registration statement of the security except A) the total amount of the security that will be offered in this state B) the total amount of the security that will be offered in each state C) a stop order from any other state that affects the offering of the security within that state D) all other states where the security is currently registered or will be registered
B) the total amount of the security that will be offered in each state It is not necessary to list the total amount of the security to be offered in all states. However, for filing fee purposes the amount to be sold in this state must be disclosed.
In order for a security to lawfully be sold or offered under the Uniform Securities Act, it must meet at least one of the following requirements except A) that it is properly registered with the Administrator. B) that it is an exempt or federal covered security. C) that it is sold in an exempt transaction. D) that it is registered with the SEC.
D) that it is registered with the SEC. Explanation It is unlawful to sell a security in a state unless the security is a federal covered security, exempt from registration under the USA, sold in an exempt transaction, or registered under the act. There is no requirement that a security be registered with the SEC; that is the primary purpose of registration by qualification—registering a security on the state level that is not SEC-registered.
Because many different securities qualify for an exemption from registration under the Uniform Securities Act, proof of qualification for an exemption is the responsibility of A) the person requesting the exemption. B) any interested investor. C) the Administrator. D) none of these—the exemptions are automatic.
A) the person requesting the exemption. The USA provides for exemption from registration in a number of cases. If the exemption is challenged by the Administrator, it is up to the person—usually the issuer—requesting the exemption to prove that it is merited.
Which of the following would not be considered a nonissuer transaction as defined in the Uniform Securities Act? A) Buffy Warren, the largest shareholder in Barkshire Mathaway, purchases an additional 50,000 shares on the NYSE. B) Gates Williams, the largest shareholder in Maxihard Corporation, sells 100,000 shares in a registered secondary transaction. C) In its capacity as a market maker, XYZ Securities sells 200 shares of Gemco common stock to the corporate treasurer of Gemco, buying for the company's investment account. 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. Explanation A nonissuer transaction is one in which the issuer does not receive the proceeds of the sale. When a stockholder sells his shares, he is the one who receives the money, not the issuer. Purchases are never considered issuer transactions because the money is going out, not coming in. When an issuer sells shares, whether in a primary or secondary transaction (as is the case with the donated shares), if it receives the proceeds, it is an issuer transaction.
Which of the following are exempt from registration under the Uniform Securities Act? I. Preferred stock issued by ZXZ Corporation, whose common stock is traded on the NYSE II. Common stock issued by a national bank III. Equipment trust certificates issued by a railroad company regulated by a state or federal agency IV. A debenture traded in the over-the-counter market issued by a corporation whose common stock trades on the NYSE A) II and III B) I only C) II, III, and IV D) I, II, III, and IV
D) I, II, III, and IV Explanation All the securities listed are exempt from registration under the Uniform Securities Act. Preferred stock issued by corporations whose common stock trades on the NYSE is a federal covered security and is exempt from registration with the states. The same is true for a debenture of a company registered on the NYSE, even though the debenture is traded over the counter. The issuers of equipment trust certificates (railroads) are regulated by other agencies, and issuers of bank securities (commercial banks) are regulated by the Federal Reserve and Office of the Comptroller of Currency (OCC); their securities are exempt from registration by the states. The National Securities Markets Improvement Act of 1996 (NSMIA) prohibits dual regulation of securities.
As enumerated in the Uniform Securities Act, exempt securities would include those issued by all of these except A) a corporation based in Toronto, Ontario, whose common stock trades on the Toronto Stock Exchange. B) any credit union organized and supervised under the laws of this state. C) a sovereign foreign government with which the United States maintains diplomatic relations. D) a promissory note that evidences an obligation to pay cash within nine months after the date of issuance, is issued in denominations of at least $50,000, and receives a rating in one of the three highest rating categories from a nationally recognized statistical rating organization.
A) a corporation based in Toronto, Ontario, whose common stock trades on the Toronto Stock Exchange. Although securities issued by the Canadian government or any political subdivision are exempt, those issued by Canadian corporations would only be exempt if trading on U.S. exchanges as federal covered securities.
Which of the following statements made by an investment adviser would violate the anti-fraud provisions of the Uniform Securities Act? A) "Our fees are nonnegotiable." (when Form ADV Part 2A clearly indicates otherwise) B) "We have over $40 billion in assets under management representing both institutional and retail clients." C) "We require any associated person determining general investment advice to be a CFA." D) "We believe that fundamental analysis is the best way to select stocks for our clients."
A) "Our fees are nonnegotiable." (when Form ADV Part 2A clearly indicates otherwise) Stating an untruth would be considered fraud. If the Form ADV Part 2 says that the fees are negotiable, you can't state that they are not. An adviser may certainly state which method of analysis he thinks is best. A firm can also set whatever standards it wishes, even though none are required by the regulatory bodies. As far as bragging about the amount of AUM, if you've got them, it is okay to flaunt them.
When a security is being registered under coordination, all of the following are required EXCEPT: A) filing with the Administrator of a statement of the maximum and minimum proposed offering price and maximum underwriting discounts or commissions concurrently with the filing of the registration statement with the SEC. B) prompt filing with the Administrator of any amendments filed with the SEC. C) none of these are exceptions. D) a description of the proposed use of the proceeds of the underwriting.
A) filing with the Administrator of a statement of the maximum and minimum proposed offering price and maximum underwriting discounts or commissions concurrently with the filing of the registration statement with the SEC. The statement of the maximum and minimum proposed offering prices and the maximum underwriting compensation must be filed at least 2 full business days before the effective date, not with the initial filing.
Fearing loss of a potential sale, an agent omits facts that a prudent investor requires to make informed decisions. Under the Uniform Securities Act, this action is A) fraudulent for both exempt and nonexempt securities B) fraudulent for exempt securities only C) fraudulent for nonexempt securities only D) not fraudulent if there was willful intent to omit the information
A) fraudulent for both exempt and nonexempt securities Material facts are facts that an investor relies on to make investment decisions. The willful omission of a material fact in the sale, purchase, or offer of a security is fraudulent. This applies whether the security offered is exempt or nonexempt.
Under the Uniform Securities Act, which of the following are exempt transactions? I. A transaction between an issuer and an underwriter II. An unsolicited customer order to buy an exempt security III. U.S. Treasury bonds IV. Municipal securities A) III and IV B) I and II C) II and IV D) I and III
B) I and II Transactions that occur between an issuer and underwriter and an unsolicited customer order to buy any security (exempt or nonexempt) are exempt transactions. It is important to remember that a transaction's exempt status generally depends on the trade's participants and/or type of trade, rather than on the security. U.S. Treasury bonds and municipal securities are exempt securities. The manner in which they are sold and to whom determines whether it is an exempt transaction.
All of the following are exempt transactions under the Uniform Securities Act except A) an agent buying a listed stock at the client's request. B) a bank buying common shares in a publicly traded railroad. C) an executor selling shares of common stock for an estate. D) an agent soliciting a customer to buy a new issue of corporate bonds.
D) an agent soliciting a customer to buy a new issue of corporate bonds. Explanation Solicited trades are generally not exempt transactions unless with institutional buyers. Sales by a fiduciary (such as an executor of an estate) are exempt from the registration provisions. Sales to financial institutions (such as a bank) are also exempt under the act. Unsolicited trades in securities traded in the secondary markets are exempt from state registration and advertising filing requirements.
Under the provisions of the Uniform Securities Act, all of the following transactions are exempt except A) liquidation of a security pledged as collateral for a loan. B) transactions by executors. C) a transaction pursuant to an offer directed by the issuer to no more than 10 individual investors in the state within a 12-month period, as long as no payment is made. D) transactions in preorganization certificates if no commission is paid, no subscriber makes any payment, and the number of subscribers does not exceed 10.
C) a transaction pursuant to an offer directed by the issuer to no more than 10 individual investors in the state within a 12-month period, as long as no payment is made. A transaction pursuant to an offer by an issuer to no more than 10 noninstitutional persons in the state would qualify as a private placement and would be exempt. However, unlike a preorganization certificate, the subscribers do pay for their purchases. All the other transactions are exempt.
Which of the following is not an accredited investor? A) An individual whose income was greater than $200,000 in each of the 2 most recent years with a reasonable expectation of reaching that level again this year. B) Any organization not formed for the purpose of purchasing securities with a net worth in excess of $5 million. C) A registered open-end investment company with net assets of $600,000. D) An individual with a net worth, including the value of her primary residence, that is greater than $1 million.
D) An individual with a net worth, including the value of her primary residence, that is greater than $1 million. Explanation An accredited investor can take different forms: an individual with a net worth, excluding the value of the principal residence, greater than $1 million (the $1 million can be joint with spouse); an individual whose yearly income for the past 2 years exceeded $200,000 ($300,000 joint with spouse) with a reasonable expectation of earning that amount this year; and any organization not formed for the purpose of purchasing the securities being offered with a net worth in excess of $5 million. In addition, any registered investment company, bank or insurance company, regardless of size, is included in the definition of accredited investor in SEC's Rule 501.
Which of the following are exempt transactions as defined in the Uniform Securities Act? I. An agent selling a security issued by a foreign government with which the United States has diplomatic relations to an individual client II. An agent filling a buy order based upon an unsolicited request from an existing client to purchase a nonexempt security III. The sale of an unregistered nonexempt security in a private, nonpublicly advertised transaction to 14 noninstitutional investors over a period not exceeding 12 months IV. The sale of unlisted securities by a trustee in bankruptcy A) I and II B) I and III C) III and IV D) II and IV
D) II and IV Explanation Unsolicited customer orders, regardless of the type of security involved, are always exempt transactions, as are sales by fiduciaries. The private placement exemption is limited to 10 noninstitutional offerees, so 14 purchasers would certainly be over the limit. While a security issued by a foreign government with which the United States has diplomatic relations is an exempt security, a solicited sale by an agent to an individual client is not an exempt transaction.
Under the Uniform Securities Act, which of the following statements is not true regarding registration of securities? A) The Administrator may require that the proceeds of the sale of securities be escrowed until sales reach a certain level. B) A post-effective amendment must be filed if there are any material changes in the information on file. C) The Administrator may require periodic sales and other reports to be filed. D) Registration statements that comply with the Uniform Securities Act automatically comply with requirements in the Investment Company Act of 1940.
D) Registration statements that comply with the Uniform Securities Act automatically comply with requirements in the Investment Company Act of 1940. Explanation The Administrator may require certain reports to be filed and that the registration statement and other offerings be updated as necessary. A post-effective amendment must be filed if there have been any material changes to information on file. Administrators may require the proceeds of the sale to be escrowed when it would take specific amounts of money to achieve the primary purpose of the offering. Registration of investment companies must comply with the Investment Company Act of 1940, and investment companies are not required to register with the state.
Registration statements for securities under the Uniform Securities Act are effective for A) one year from the date of issue. B) one year from the previous December 31. C) a period of time determined by the Administrator for each issue. D) one year from the effective date.
D) one year from the effective date. Explanation Securities registration statements are generally effective for one year from the effective date.
Which of the following would be considered an issuer transaction as defined in the Uniform Securities Act? A) 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. B) Barb, the largest shareholder in XYZ Corporation, purchases an additional 50,000 shares on the NYSE. C) Ken, the largest shareholder in ABC Corporation, sells 100,000 shares in a registered secondary transaction. D) 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.
A) 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.
