All Small Question Sets CH 1-4

According to the Uniform Securities Act, which of the following transactions may use general advertising and still be exempt from full registration?

Preorganization subscriptions

According to the Uniform Securities Act, if information filed with the Administrator becomes inaccurate or incomplete in any material respect, a registrant must file amendments

Promptly

Any changes of material fact on an agent's registration must be filed

Promptly

What is deemed to be an unethical business practice?

Sharing in profits or losses in the account of a customer without written authorization of the customer and the broker-dealer carrying the account.

Examples of an exempt transaction?

- A preorganization subscription transaction - A sale of stock through a rights offering to existing shareholders of the issuing corporation if no commission is paid -A sale of securities by the executor of an estate

Examples of what does NOT constitute as an "offer" by USA standards

- An individual who lives in New Jersey subscribes to a paper that is published in New York and has over 80% of its subscribers in New York. The paper contains a solicitation. - An individual in Los Angeles receives a financial publication that contains solicitations that originate in New York - An individual who lives in Nevada hears a promotion on a radio station that is broadcast from Arizona.

Under the Uniform Securities Act, if the Administrator does not deny an application for registration and no disciplinary proceeding is underway in regard to it, how long after filing of the application does registration generally become effective?

30 days

Under the provisions of the Uniform Securities Act, an investment adviser's registration becomes effective:

30 days from the filing date, or earlier if so deemed by the Administrator.

According to the NASAA Statements of Policy, which of the following entities would be allowed to offer to buy from, or sell to, any person, any security at a stated price if this entity is prepared to purchase or sell at the stated price at the time of the offer to buy or sell?

A broker-dealer

What best fits the definition of an Investment Adviser under the Uniform Securities Act?

A financial planner with a degree in accounting which charges an additional fee for giving clients advice about investing in securities

Regulated by the Uniform Securities Act, "person" refers to

Almost any entity

The last time an agent met with one of his clients they discussed the possibility of investing in ABC common stock based on the growth potential of ABC. Today the agent is informed that ABC has been awarded a large contract for future work. This news will cause the growth of ABC to move up quickly. The agent is unable to reach the client but is sure that the client would like to own ABC now. Which of the following actions would be appropriate by the agent?

Continue to try to contact the client and not enter an order to buy ABC until he has reached the client.

An IA has decided to refer several of its clients to a third party market timer. To avoid conflicts of interest with the client, the IA should:

Disclose agreement in form ADV

Mrs. Smith's granddaughter is concerned about her grandmother's financial condition and pays a visit to her grandmother's investment adviser. She has a copy of her grandmother's statements and a copy of the advisory agreement. Which of the following would be an unethical practice for the IA:

Discuss the details of the grandmother's account with the granddaughter since she already has possession of account statements and the advisory agreement.

Under the NASAA Model Rules, which of the following need not be included when entering into, extending, or renewing any investment advisory contract?

The investment adviser's experience level

According to the Uniform Securities Act and the Securities Exchange Act of 1934, which of the following would not cause statutory disqualification from association with a FINRA member:

having less than 6 months' experience in the securities business

Nancy is an investment adviser and for the previous year she has charged her clients a performance-based fee, based on the appreciated value of each of her client's accounts. Under the Uniform Securities Act, this practice is:

not allowed since it was based on the appreciated value of the securities under management.

According to the Uniform Securities Act, which of the following is an exempt security as opposed to an exempt transaction?

securities listed on the New York Stock Exchange

qIn any proceeding under the Uniform Securities Act, the burden of proving an exemption or exception from the definition is placed upon which of the following?

the person claiming the exemption or exception from definition

A Purported Gift is a gift where

the person who receives the "gift" has to do something to get it, and it is therefore not a true or bona fide gift.

The explanation behind what constitutes an "offer" by Uniform Securities Act standards

when the offer originates in that state and is made to an individual in that state

Which of the following would NOT be considered a bona fide "gift" of securities? - A corporation gives preemptive rights to existing shareholders in relation to an existing issue of common stock. - After receiving several assessments, a grandfather gives 100 shares of assessable stock to his adult grandchild for his birthday. - As part of his last will and testament, an uncle gives regular common stock in a widely known corporation to his adult niece upon passing away. - During a bond issuance, a corporation gives warrants to those buying the bonds in order to make the issuance more marketable.

- A corporation gives preemptive rights to existing shareholders in relation to an existing issue of common stock. - After receiving several assessments, a grandfather gives 100 shares of assessable stock to his adult grandchild for his birthday. - As part of his last will and testament, an uncle gives regular common stock in a widely known corporation to his adult niece upon passing away. - During a bond issuance, a corporation gives warrants to those buying the bonds in order to make the issuance more marketable.

What is NOT true under the Uniform Securities Act?

- Any broker-dealer who gives investment advice is considered an investment adviser even though such advice is incidental to the conduct of his business and he receives no special consideration. - A publisher of a financial magazine with a paid circulation is considered to be an investment adviser. - The term investment adviser includes banks.

According to the Uniform Securities Act, which of the following exemptions may the Administrator deny or revoke by order

- Any exempt transaction - Exchange-listed securities - Securities of non-profit organizations - Investment contracts issued by employee benefit plans

Under the Uniform Securities Act, an investment adviser would be required to be registered if they provided advice about which of the following? - Income producing Real Estate - Fixed Annuities - Common Stock - Equity Options

- Common Stock - Equity Options

Which of the following are exempt from the sections of the Uniform Securities Act which require registration and filing of advertising materials? - Common and preferred stock issued by a corporation and sold over-the-counter - Debt securities issued by the United States as well as those issued by the Canadian Government - Bonds and debentures issued by a corporation and sold over-the-counter - Securities such as common stock that are listed on a stock exchange such as the NYSE

- Debt securities issued by the United States as well as those issued by the Canadian Government - Securities such as common stock that are listed on a stock exchange such as the NYSE

According to NASAA regulations, all of the following situations would require an IA to file a balance sheet with the Administrator at the end of the IA's fiscal year

- If an IA requires pre-payment of advisory fees, 6 or more months in advance and those fees exceed $1,200 per client - If an IA has taken custody of client securities or funds - If an IA has received and maintains written discretionary authority over the funds or securities of clients

According to the Uniform Securities Act, performing which of the following activities would cause an individual to be considered an investment adviser representative? - If the individual manages the accounts or portfolios of clients - If the individual issues securities to the general public - If the individual renders advice or recommendations regarding securities -If the individual effects securities transactions for other people's accounts

- If the individual manages the accounts or portfolios of clients - If the individual renders advice or recommendations regarding securities

An investment adviser headquartered in State A wishes to solicit customers in State B. Which statements are true? - If the investment adviser has an office in State B, it must register in State B. - If the investment adviser has an office in State B, it need not register in State B. - If the investment adviser has no office in State B, it must register in State B. - If the investment adviser has no office in State B, it need not register in State B.

- If the investment adviser has an office in State B, it must register in State B. - If the investment adviser has no office in State B, it need not register in State B.

A Purported Gift: - Is considered to be a bona fide gift - Is not considered to be a bona fide gift - Is considered to be a sell or sale - Is not considered to be a sell or sale

- Is not considered to be a bona fide gift - Is considered to be a sell or sale

If an investment adviser has a principal place of business in a given state, that state's Administrator may impose what requirements according to the Uniform Securities Act?

- It may require the IA to file certain financial statements. - It may require the IA to file amendments to existing registrations applications. - It may require the IA to file its sales literature. - It may require the IA to maintain certain records.

The Uniform Securities Act attempts to protect the investing public by:

- Licensing and regulating dealers and salespersons. - Providing civil remedies to purchasers of securities and providing disciplinary and criminal penalties for unlawful acts. - Requiring registration of securities.

Under the Uniform Securities Act which two of the following securities are not exempt from registration? - Common stock listed and traded on the New York Stock Exchange Corporate bonds issued by a company which has common stock listed and traded on NASDAQ - Securities issued by Bank Holding Companies - Corporate bonds issued by a company which does not have common stock listed on an exchange

- Securities issued by Bank Holding Companies - Corporate bonds issued by a company which does not have common stock listed on an exchange

Which of the following are TRUE when it comes to the authority of an Administrator? - The Administrator of a given State is mainly charged with protecting the residents of that State from securities law violations. - The Administrator of a given State is mainly charged with protecting the broker-dealer and investment advisory firms of that State. - The Administrator of a given State is primarily focused on investigating and taking action against firms that commit securities law violations within their State. - The Administrator of a given State is primarily focused on investigating and taking action against firms that commit securities law violations in other States.

- The Administrator of a given State is mainly charged with protecting the residents of that State from securities law violations. - The Administrator of a given State is primarily focused on investigating and taking action against firms that commit securities law violations within their State.

According to the NASAA Statement of Policy of Investment Advisers, an investment adviser would only be allowed to loan money to a client if: - The client will repay the loan within 30 days - The Adviser is a financial institution engaged in the business of loaning money - The client is a relative of the investment adviser - The client is an affiliate of the investment adviser

- The Adviser is a financial institution engaged in the business of loaning money - The client is an affiliate of the investment adviser

An IA may be liable for civil damages to a client if:

- The IA fails to disclose a material fact in soliciting the clients - The IA fails to disclose that the IA will sell a recommended security from its own account. - The IA fails to reasonably supervise an employee who becomes civilly liable to clients for negligent investment advice.

Which of the following would be allowed under NASAA Statement on Investment Advisers? The IA loans money to an affiliated client. The IA loans money to a client that is a relative who is going through tough times The IA borrows securities from a client that is a broker-dealer. The IA borrows securities from a client that is not an affiliate of the Investment Adviser.

- The IA loans money to an affiliated client. - The IA borrows securities from a client that is a broker-dealer.

In which TWO of the following situations would an investment adviser be required to file the appropriate audited financial statements with a state Administrator? - Discretionary authority has been given to the IA. - The IA requires that any fee totaling more than $1,200 be paid six months or earlier in advance of service. - The IA manages assets totaling more than thirty million dollars. - Client funds are held in the custody of the IA.

- The IA requires that any fee totaling more than $1,200 be paid six months or earlier in advance of service. - Client funds are held in the custody of the IA.

The USA regulates what investment advisers can say to clients. Which of the following may an IA legally state to a client? - The adviser can state that they are registered - The adviser can state that the Administrator has verified all information on the IA's registration - The adviser can state that the Administrator has passed on the competence of the IA

- The adviser can state that they are registered ONLY

A broker-dealer firm is engaged in brokerage activities for customers, but also undertakes investment banking activities where the firm underwrites and distributes issues of new securities. Because of the fact that the firm provides these functions, which of the following are true in relation to NASAA regulations? - The firm is permitted to sell new issues of securities to brokerage clients without disclosure in relation to participation in such investment banking activities. - The firm is permitted to sell new issues of securities to brokerage clients, but full disclosure of the investment banking activities must be made and other regulations apply. - After a firm commitment underwriting, if the firm has not sold all of the new issue of securities, the firm would be unable to return unsold shares to the issuer. - During the underwriting procedures, the firm is permitted to retain a portion of the sale of a new issue of securities for the firm's account and later sell those securities in the secondary market at a premium.

- The firm is permitted to sell new issues of securities to brokerage clients, but full disclosure of the investment banking activities must be made and other regulations apply. - After a firm commitment underwriting, if the firm has not sold all of the new issue of securities, the firm would be unable to return unsold shares to the issuer.

An investment advisory firm is going through some restructuring. The firm was previously a sole proprietorship, but will now be a general partnership. As well, several of the larger clients are receiving new investment advisory representatives at the firm, who are better-suited to serve their financial needs. Which of the following is TRUE? - The firm has no obligation to notify clients that there has been a change in the ownership of the firm. - The firm must notify clients that there has been a change in the ownership of the firm. - The firm has no obligation to notify larger clients of the assignment of their contracts since the firm was restructuring. - The firm must notify and seek the consent of any clients whose contracts have been assigned to other representatives within the firm.

- The firm must notify clients that there has been a change in the ownership of the firm. - The firm must notify and seek the consent of any clients whose contracts have been assigned to other representatives within the firm.

When an Administrator of a state reviews the effectiveness of the registration statement for a security to be offered in their state, such registration may be denied based on which of the following? - The issuer intends to offer services which are illegal in the state - Compensation to the underwriters is disproportionally high based on the offering - The company is a start-up company and has no history of previous operations - The registration documents have been found to include inaccurate data

- The issuer intends to offer services which are illegal in the state - Compensation to the underwriters is disproportionally high based on the offering - The registration documents have been found to include inaccurate data

An agent at a broker-dealer is making sales to various clients. When it comes to exempt transactions, which of the following would be exempt? The sale of stock to a mutual fund The sale of stock to a pension fund The sale of stock to a banking institution The sale of stock to several large insurance companies

- The sale of stock to a mutual fund - The sale of stock to a pension fund - The sale of stock to a banking institution - The sale of stock to several large insurance companies

According to the Uniform Securities Act, when an agent's registration is revoked for a violation, the administrator may deny any future application submitted by the person for registration by an:

- agent - broker-dealer - investment adviser - financial and operations principal

Any investment adviser that violates any provisions of the Uniform Securities Act may be subject to which of the following:

- imprisonment for not more than three years - appointment of a receiver over the adviser's assets - revocation of the adviser's registration - permanent injunction

Under the Uniform Securities Act, which of the following are required in order for the offer or sale of a pre-organization certificate to be exempt from registration: - no payment may be made by any subscriber - no general advertising may be utilized - the number of subscribers may not exceed ten

- no payment may be made by any subscriber - the number of subscribers may not exceed ten

All of the following would be considered an offer or sale of a security under the Uniform Securities Act:

- the disposition of an interest in a security for value - a purported gift of assessible stock - a bonus of one share of common stock given on account of the purchase of a corporate debenture

According to the Securities Exchange Act of 1934 and NASAA Regulations, a person exercises discretion with respect to an account if: - the person is authorized to determine which securities will be purchased for the account. - the person purchases securities for the account at direction of the client. - the person is authorized by the client to purchase a security for the account if the price reaches a certain level.

- the person is authorized to determine which securities will be purchased for the account.

An agent who commits a fraudulent violation of securities laws may be: Expelled from the industry permanently Fined Imprisoned Suspended

All

According to the Uniform Securities Act, an application for registration as an investment adviser required by administrative rules must contain which of the following: - administrative orders against the applicant - misdemeanor convictions against the application over the last 10 years (This involves any aspect of the securities business). - felony convictions against the applicant that are unrelated to the securities business - the financial condition and history of the applicant

All of the above

According to the Uniform Securities Act, who automatically becomes registered as an investment adviser representative when an investment advisory firm's registration becomes effective?

Any partner, officer, or director of the firm

A non-issuer transaction, according to the Uniform Securities Act, is best described by which of the following?

Any sale in which the issuer does not directly or indirectly benefit from the transaction.

Would NOT be considered an offer or sale of a security under the USA

Bona Fide Pledge

Under the USA, which of the following are considered exempt securities? ADRs Bonds issued by a corporation Bonds issued by a bank Securities issued by a federal credit union

Bonds issued by a bank Securities issued by a federal credit union

An individual receives commissions from both a broker-dealer and an issuer. He would be considered an agent of:

Both Issuer and BD - As individual is receiving compensation from both

How would a financial services company, solely in the business of performing transactions in securities for its own account be classified?

Broker dealer

Gil goes into an IA firm and opens an account with Cindy. Initially he didn't give Cindy any discretionary authority. However after seeing the amount of time that he has spent researching stocks for himself, he thinks discretionary authority might be a good idea. He calls into the firm and tells Cindy over the phone that he wants her to use discretionary authority in the account starting immediately. Cindy reviews the account for suitability purposes and immediately makes a few changes to the account without receiving anything in writing from Gil. How do NASAA Regulations govern this type of situation?

Cindy is acting in accordance with NASAA Rules with the use of the discretion at this time, but she is required to ensure that within 10 business days, Gil sends in written discretionary authority. If he does not, she must cease using discretionary authority until it is received in writing.

A registered investment adviser that has custody of client funds, has discretionary authority over client funds, or requires pre-payment of fees in excess of $500 or more, more than 6 months in advance, is required to maintain a minimum net worth and must:

File a balance sheet with the State securities Administrator within 90 days of the end of the IA's fiscal year.

According to NASAA regulations, when would an IA NOT be required to file a balance sheet with the Administrator at the end of the IA's fiscal year EXCEPT

If an IA requires all clients to pre-pay an initial advisory fee of $100

What is true under the Uniform Securities Act?

Lawyers, teachers, engineers and accountants who perform advisory services incidental to the practice of their profession is not considered to come within the definition of investment adviser.

An agent has sold securities and violates the Uniform Securities Act. Then the agent gets a signed agreement from that customer stating that the customer knows of the violation and waives compliance with the Act. Such agreements are:

Null and Void

What is NOT a definition of a security under USA

Precious metals

A firm is a Broker-Dealer and Investment Adviser. The firm would like to act as a principal for their own account in the sale of security to a client as a broker-dealer. Which of the following is true with regard to this transaction?

Since the firm is acting only on behalf of a broker-dealer client written disclosure would not be required to the client. - If the firm is acting as an IA, then proper written disclosure would be required to the client prior to completion of the transaction. If the firm is acting as a broker-dealer, acting as a principal would be part of the broker-dealer's normal business functions

Frank is applying to be an IAR in Nevada. He worked in mortgages several years ago and when times were good, he and his wife purchased an expensive home. They had to then declare bankruptcy when the bottom dropped out of the real estate market and Frank was laid off. Which of the following is true regarding this scenario?

The Administrator can review Frank's application and deny it if Frank has recently violated securities law, but could not deny the application just for the bankruptcy.

Joe has decided that being an Investment Adviser is not the right career choice for him and decides to terminate his job with his Investment Advisory Firm. The Investment Advisory firm would be required to notify:

The State Securities Administrator promptly

Coordination is used to register securities with a state and an agent is talking to a prospective buyer about these securities. The Uniform Securities Act permits which of the following statements regarding this situation?

The agent may state that no assessment or judgment has been made by the Administrator with regards to the viability of the company or security.

An agent of a broker-dealer receives a call from a client. The client informs the agent that DEF Incorporated, the client's employer, has just been awarded a large government contract. This information is not yet public. The client then asks the agent of the broker-dealer to buy 1,000 shares of DEF in their account because the client anticipates a large jump in the stock price once the information goes public. Which of the following is the BEST course of action for the agent in this scenario?

The agent should educate the client with regards to regulations related to insider trading, refuse to perform the trade, and then contact the firm's legal/compliance department for further instructions related to this scenario.

What is correct under the Uniform Securities Act regarding the Administrator's ability or authority to examine a broker-dealer's records when the broker-dealer is registered in the Administrator's state?

The books and records of broker-dealers registered in a state may be reviewed at any time or place by the state's Administrator without any prior notice being given to the broker-dealer.

The Uniform Securities Act provides exemptions to the registration of various transactions. One such exemption applies to pre-organization certificates or subscriptions. Which of the following is NOT a condition related to the exemption for transactions in pre-organization certificates?

The number of subscribers to the pre-organization can be as high as fifty (50).

What is NOT an exempt transaction?

The sale of U.S. government securities by a registered government securities dealer - This is an exempt security

An Administrator has received a flurry of complaints from several investors regarding a certain type of non-profit organization which can currently issue securities that are exempt from registration. The Administrator comes to the conclusion that the best solution would be to revoke the exemption for this particular type of non-profit by order. Is this permitted since the security is exempt?

This is permitted, because the Administrator is given limited authority to deny or revoke certain exemptions by rule or order in specific scenarios.

What is excluded from the definition of an IA?

Trust companies, investment companies, and banks and savings institutions are excluded from the definition of an IA, even when they charge a fee for those services.

Under the Uniform Securities Act, it is unlawful for any person to offer or sell any security in a state unless the security is registered, exempt from registration or is a federal covered security. When a security is registered with a state it means that the security can be lawfully sold in that state

Upon effective date of registration

The President of XYZ Corporation discloses material non-public information about his company to his brother-in-law. The President's brother-in-law immediately purchases 10,000 shares of XYZ. The brother-in-law has:

Violated the act by acting on insider information

According to the Uniform Securities Act when a corporation is the successor broker-dealer to a partnership, which of these choices is correct with regard to registration of its directors as agents of the broker-dealer?

When the broker-dealer is registered, it automatically constitutes registration of the directors as agents of the broker-dealer.

Under the Uniform Securities Act, the term "person" means

an individual, a corporation, partnership, association, joint stock company, trust, unincorporated organization, government, or political sub-division of a government.

By definition the term "broker-dealer" means

any person engaged in the business of effecting transactions for the accounts of others (clients) or for their own account (firm)

In order to take advantage of lower commissions for several of his clients, an investment adviser (IA) often places block trades on their behalf. It is not unusual for the IA to receive several different prices for the securities when placing and executing these block orders. The IA, after the block orders are filled, then allocates the proper amounts of shares to his clients. As a favor to several of the other employees, the IA allocates the orders with the best pricing to the personal accounts of other employees, then allocates the rest of the orders to clients. This practice is not disclosed to clients. The IA has certain fiduciary obligations to his clients. Regarding his undisclosed practice, the IA's actions are

are inappropriate, because the IA has not properly disclosed the preferable allocations to fellow employee's personal accounts to clients, thus breaching his fiduciary duty.