Unit 8 Checkpoint Exam
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 each state B) a stop order from any other state that affects the offering of the security within that state C) all other states where the security is currently registered or will be registered D) the total amount of the security that will be offered in this state
A) 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.
Which of the following can issue stock? A) The U.S. Treasury B) A corporation C) A state D) A city
B) 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.
The Uniform Securities Act would consider which of the following insurance products to be a security? A) Fixed annuity B) Modified endowment life insurance C) Variable life insurance D) Mortgage life insurance
C) 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.
Each of the following persons is able to issue securities except A) a partnership B) a corporation C) an individual D) a credit union
C) an individual Individuals (natural persons) cannot issue securities. You can't sell stock in yourself.
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) not fraudulent if there was willful intent to omit the information B) fraudulent for exempt securities only C) fraudulent for both exempt and nonexempt securities D) fraudulent for nonexempt securities only
C) 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.
Which of the following is an exempt security under the Uniform Securities Act? A) Common stock traded on the London Stock Exchange. B) Commercial paper maturing in 12 months. C) Shares of a U.S.-based insurance company not authorized to sell policies in that particular state. D) Negotiable certificates of deposit with $100,000 denominations.
D) 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.
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) futures contract C) fixed annuity D) federal covered security
D) 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 published articles about the issuer. B) send in-house research. C) submit a pending order. D) send a preliminary prospectus.
D) 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.
Which of the following statements made by an investment adviser would violate the anti-fraud provisions of the Uniform Securities Act? A) "We require any associated person determining general investment advice to be a CFA." B) "We have over $40 billion in assets under management representing both institutional and retail clients." C) "We believe that fundamental analysis is the best way to select stocks for our clients." D) "Our fees are nonnegotiable." (when Form ADV Part 2A clearly indicates otherwise)
D) "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.
Which of the following is not an accredited investor? A) Any organization not formed for the purpose of purchasing securities with a net worth in excess of $5 million. B) A registered open-end investment company with net assets of $600,000. C) An individual with a net worth, including the value of her primary residence, that is greater than $1 million. D) 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.
C) An individual with a net worth, including the value of her primary residence, that is greater than $1 million. 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 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) Barb, the largest shareholder in XYZ Corporation, purchases an additional 50,000 shares on the NYSE. C) 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. 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.
The U.S. Supreme Court case resulting in the decision that an investment contract is a security is the A) Golub case B) Howey case C) Muller case D) Steiner case
B) Howey case 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.
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) Administrator. B) company. C) court. D) CEO.
B) 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).
When a security is being registered under coordination, all of the following are required EXCEPT: A) prompt filing with the Administrator of any amendments filed with the SEC. B) none of these are exceptions. C) 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. D) a description of the proposed use of the proceeds of the underwriting.
C) 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.
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 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
As referred to in the NSMIA, the term "federal covered security" would apply to: 1 preferred stock in the XYZ Corporation whose common stock is listed on the NYSE. 2 common stock in ABCD, Inc., a stock traded on the OTC Link. 3 Springfield, Illinois, municipal bonds sold to a resident of Springfield, Illinois. 4 Springfield, Illinois, municipal bonds sold to a resident of Springfield, Missouri. A) III and IV. B) I and II. C) I and IV. D) II and III.
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.
Under the Uniform Securities Act, a private placement is considered an exempt transaction if: A) the security is rated in the top three grades by a recognized rating agency. B) no payment is made with any purchase. C) the sale is unsolicited. 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. 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.
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) Bonds that are obligations of the People's Republic of North Korea 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) Equipment trust certificates issued by railroads whose rates are not subject to regulation by a state or federal agency
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. 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 do not qualify.
