s66.2 fed securities acts

Which investment adviser MUST register with the SEC? An investment adviser with assets of: $1,000,000 $100,000,000 $110,000,000 all investment advisers must register with the SEC, regardless of their assets

$110,000,000 Investment advisers are only required to register with the SEC if their assets under management are $100,000,000 or more - however, the SEC has issued an interpretation that advisers that have between $100-$110 million of assets under management have the option of registering with the SEC. Once the adviser hits $110 million or more of assets under management, has no choice and must register with the SEC.

Commercial paper is an exempt security under the Securities Act of 1933 as long as its maturity does not exceed:

270 days Commercial paper is an exempt security under the Securities Act of 1933 as long as its maturity does not exceed 270 days. If the maturity is longer than this, it is non-exempt and must be registered and sold with a prospectus.

Under the Investment Advisers Act of 1940, an SEC registration application as an investment adviser must be granted; or a proceeding must be initiated denying registration, within:

45 days Investment adviser registration applications filed with the Securities and Exchange Commission must be granted; or a proceeding started to deny registration; within 45 days of filing.

Under the Investment Advisers Act of 1940, records MUST be retained for:

5 years The Investment Advisers Act of 1940 requires that records be maintained for 5 years. Note that NASAA has the same 5 year rule for State-registered advisers. (Also note that broker-dealer record retention rules are set under the Securities Exchange Act of 1934 and are generally 3 years, with the exception of customer account statements, which must be retained for 6 years.)

An offering of securities in an amount that does not exceed $50,000,000, is given an exemption from registration under the Securities Act of 1933's: A) Regulation A B) Rule 147 C) Regulation D D) Rule 144

A) Regulation A Regulation A under the Securities Act of 1933 gives an exemption from registration to issues of no more than $50,000,000. Rule 147 is the SEC's "intrastate" exemption; while Regulation D is the SEC's "private placement" exemption.

Which of the following statements is TRUE regarding an investment adviser that solely follows and recommends NYSE listed securities? A) The adviser is subject to either State or Federal registration depending upon the amount of assets under management B) The adviser is subject to State registration only C) The adviser is exempt from State registration D) The adviser is exempt from State and Federal registration regardless of the amount of assets under management

A) The adviser is subject to either State or Federal registration depending upon the amount of assets under management There is no exemption from registration for an investment adviser that follows only listed securities, at either the State or Federal level. The adviser must be registered in the State if it manages assets of less than $100,000,000; and if the adviser manages assets of $100,000,000 or more, it must register with the SEC.

An investment adviser representative obtains a list of all 263 members of the local Kiwanis Club and sends a coupon to 52 leads on the list, along with a letter, offering a 20% discount on services to new clients that are club members. Aside from retaining a copy of the letter, under the provisions of the Investment Advisers Act of 1940, the investment adviser MUST keep: A) a memorandum describing the list and the source of the list B) a record of the names and addresses of the persons to whom the offer was made C) the worksheets that estimate the net worth of leads and the standards used to determine which leads were to receive the offer D) a record of the names and addresses of all of the Kiwanis Club members on the list

A) a memorandum describing the list and the source of the list The Investment Advisers Act of 1940, under Rule 204-2 on Recordkeeping, requires that if an investment adviser sends any notice, circular or other advertisement to more than 10 persons, the adviser is not required to keep a record of the names and addresses of the persons to whom it was sent. But if the notice is distributed to persons named on any list, the adviser must "retain, along with a copy of such notice, a memorandum describing the list and the source thereof."

The States in which an investment adviser is registered would: A) be found in Form ADV Part 1 B) be found in Form ADV Part 2 C) be found in both Form ADV Part 1 and Form ADV Part 2 D) not be found in either Form ADV Part 1 or Form ADV Part 2

A) be found in Form ADV Part 1 The ADV Part 1 is the basic registration information filed with the SEC - such as name of firm, address, phone number, officers, shareholders, States where the adviser is registered, etc. The ADV Part 2 is broken down into 2 parts. Part 2A is the "Brochure" that must be delivered to customers. It describes the investment adviser's policies, fees, education, types of investments, types of clients, method of analysis used, conflicts of interest, etc. Part 2B is the "Brochure Supplement" which details the educational and work background of the key personnel who make investment decisions or manage accounts.

An investment adviser representative(IAR) prepares an investment plan for a customer and explains to the customer that he places trades through ABC broker-dealerwith whom the IAR has a soft dollar relationship. The customer tells the IAR that he wants ½ of the trades placed through DEF broker-dealer. The IAR should: A) place ½ the trades with ABC broker-dealer and ½ the trades with DEF broker-dealer B) place all of the trades through ABC broker-dealer since the customer has no say in which broker performs the IAR's trades C) place all the trades though DEF broker-dealer since such an arrangement is a conflict of interest D) close the account and refund all monies to the customer

A) place ½ the trades with ABC broker-dealer and ½ the trades with DEF broker-dealer A "soft dollar" relationship is where a broker-dealer provides "free" research or stock quotes to an adviser, in return for the adviser directing its portfolio trades to that broker-dealer. Since this can be viewed as a conflict of interest, it must be disclosed to customers. If the customer wants his or her trades placed through another broker-dealer, follow the customer's instructions - after all, it is the customer's account.

If a person accumulates a 5% or greater holding in a publicly held company with the intention of exercising control: A) Form d must be filed within 5 business days B) Form 13d must be filed within 10 business days C) Form 10k must be filed within 10 business days D) Form S-l must be filed promptly

B) Form 13d must be filed within 10 business days Anyone who accumulates a 5% position in one company must make a 13d filing with the SEC within 10 business days.

To be registered with the SEC as an investment adviser, filing of which of the following is required? A) Form ADVPart 1 only B) Form ADV Part 1 and Part 2 C) Consent to service of process D) Registration information for each representative

B) Form ADV Part 1 and Part 2 To register with the SEC as an investment adviser, Form ADV Part 1 and Part 2 must be filed. A consent to service of process is only filed for State registration, not for SEC registration. The SEC only registers firms as advisers; it does not register the firm's representatives.

Under the Investment Advisers Act of 1940, which of the following statements is FALSE about the acceptance of prepaid advisory fees by an investment adviser? A) The fees must be detailed in writing in the advisory contract B) The fees cannot amount to more than 6 months' payment in advance C) Prepaid fees in excess of $1,200 require that the adviser's balance sheet be included in the "Brochure" D) A refund of prepaid fees must be given if the contract is cancelled prematurely

B) The fees cannot amount to more than 6 months' payment in advance Prepaid advisory fees are permitted, as long as they are detailed in the advisory contract; and there is a refund of such fees if the contract is canceled prematurely. There is no restriction on the amount of prepaid fees that can be accepted - but remember that under the Statement of Policy on unethical practices, adviser fees must be similar to those charged by other advisers for comparable services. If an adviser accepts $1,200 or more of prepaid fees, for 6 months or more of service in advance, then a balance sheet must be included in the "Brochure" given to customers (the "Brochure" is Part 2A of Form ADV). Acceptance of prepaid fees is not the same as taking custody of customer funds or securities.

In an advertisement, an investment adviseroffers "free" investment advice as long as the customer buys life insurance. Which statement is TRUE? A) This is permitted B) This is an unethical practice C) Such an advertisement must be prefiled with the SEC D) Such an advertisement must be dated

B) This is an unethical practice Services that are advertised as "free" - must really be free! Tying the "free" service to the purchase of another product means that one is truly paying for that service (the cost of the service, in this case, is buried in the cost of the insurance being sold). This is an unethical practice.

If the SEC sends a deficiency letter to the issuer regarding an issue in registration: A) it disapproves of registering the issue B) disclosure is not considered to be adequate C) the underwriters have failed to establish the Public Offering Price D) due diligencehas not been performed by the underwriters

B) disclosure is not considered to be adequate An SEC "deficiency letter" indicates that there is not adequate disclosure in the registration documents filed under the Securities Act of 1933 to allow investors to make an informed decision. The deficiency must be cured before the SEC will allow the registration to be effective.

All of the following must be disclosed by an investment adviser to a customer under the Investment Advisers Act of 1940 EXCEPT an investment adviser who: A) takes custody of client funds is having trouble paying its bills B) does not take custody of client funds is 6 months late paying the rent on the office space C) takes custody of client funds is expelled by FINRA D) does not take custody of client funds was convicted of embezzlement 7 years ago

B) does not take custody of client funds is 6 months late paying the rent on the office space If an investment adviser takes custody of client funds; has discretionary accounts; or takes prepaid advisory fees of $1,200 or more, 6 months or more in advance of rendering services, then the adviser must disclose an impaired financial condition to the customer. If the adviser does not have access to client monies, then this disclosure is not required. However, all advisers (whether or not they have access to client monies) are obligated to disclose to customers any convictions for law violations and disciplinary actions taken by the SEC, FINRA, etc.

An indication of interest for a new stock offering is normally taken: A) before the 20 day cooling offperiod B) during the 20 day cooling off period C) after the 20 day cooling off period D) either before, during, or after the 20 day cooling off period

B) during the 20 day cooling off period An indication of interest is taken during the 20 day cooling off period before a new issue's registration becomes effective. The underwriters use the indications collected as one of the determinants for pricing the issue (this happens at the very end of the cooling off period).

The Securities Act of 1933 requires that new issues of securities be registered with the SEC if the: A) issue will be sold within 1 State only to residents of that State B) mails, or other means of interstate commerce, are used to sell the securities C) value of the securities offering exceeds $5,000,000 D) securities offering will be made to more than 35 accredited investors

B) mails, or other means of interstate commerce, are used to sell the securities The Securities Act of 1933 requires that any new issues that are offered "through the mails or other means of interstate commerce" must be registered (unless an exemption is available). Remember, the 1933 and 1934 Acts are Federal law; and the Federal government only has jurisdiction over offers and transactions that cross state lines (interstate).

A private fund adviser with less than $150 million of assets under management: A) must register with the SEC B) must report to the SEC C) must register with, and report to, the SEC D) is neither required to register with, nor report to, the SEC

B) must report to the SEC Private fund advisers (advisers to hedge funds) with $150 million or more of assets under management (AUM) must register with the SEC. If the private fund adviser has less than $150 million of AUM, it is an "exempt reporting adviser." It must still report to the SEC by filing parts of Form ADV annually, but does not have to register with the SEC by filing Form PF. The intent is to give the SEC (and the public) information about what hedge funds are doing.

Under the Investment Company Act of 1940, an investment adviser's contract is initially set for: A) 1 year; and is subject to renewal every year thereafter B) 1 year; and is subject to renewal every 2 years thereafter C) 2 years; and is subject to renewal every year thereafter D) 2 years; and is subject to renewal every 2 years thereafter

C) 2 years; and is subject to renewal every year thereafter The investment adviser's contract is initially set for 2 years and is then renewed annually. The contract renewal is approved either by the Board of Directors of the Fund; or a majority vote of the outstanding shares.

Which of the following individuals will be denied federal registration as an investment adviser? A) A person who was convicted of misappropriation of funds 12 years ago B) A person who has been imprisoned for 3 months for "DUI" - driving under the influence C) A person who, 11 years ago, was imprisoned for 18 months for counterfeiting D) None of the above

C) A person who, 11 years ago, was imprisoned for 18 months for counterfeiting The National Securities Markets Improvement Act of 1996 specifically requires the denial of SEC registration as an investment adviser to any person who has a criminal record and who has been imprisoned for 1 year or more.

Jane is a Registered Investment Adviser. She hears from an inside source at ABC Corporation that the upcoming quarterly earnings report will show a loss. Most analysts have been estimating record earnings for ABC Corporation. Based on this information, she sells her ABC shares; and informs Bob, her largest client, of the information. Based on this information, Bob sells his holding in ABC Corporation as well. Who has violated the Securities Exchange Act of 1934? A) Jane B) Bob C) Both Jane and Bob D) Neither Jane nor Bob

C) Both Jane and Bob The insider trading rules under the Securities Exchange Act of 1934 extend liability for insider trades to the person that transmitted the confidential information; as well as to those that trade on the confidential information. Both of these persons traded on the information - so both are clearly liable.

An investment adviser is looking to offer advisory services to new clients. Which statement is TRUEregarding delivery of the Brochure (ADV Part 2A) and Brochure Supplement (ADV Part 2B)? A) Only the Brochure is required to be delivered to a new customer at, or prior to, entering into an advisory contract B) Only the Brochure Supplement is required to be delivered to a new customer at, or prior to, entering into an advisory contract C) Both the Brochure and the Brochure Supplement are required to be delivered to a new customer at, or prior to, entering into an advisory contract D) Neither the Brochure nor the Brochure Supplement are required to be delivered to a new customer at, or prior to, entering into an advisory contract

C) Both the Brochure and the Brochure Supplement are required to be delivered to a new customer at, or prior to, entering into an advisory contract The "Brochure Rule" obligates an investment adviser to give a potential customer the disclosure document (Part 2A of Form ADV) and the Brochure Supplement (Part 2B of Form ADV) at or prior to entering into a contract to provide advisory services.

Which of the following persons can use the term "investment counsel"? A) Investment adviserswho are also attorneys admitted to the Bar in that State B) Investment advisers who are also broker-dealersregistered in that State C) Investment advisers whose primary business is the rendering of investment advice D) Any investment adviser registered with the SEC under the Investment Advisers Act of 1940

C) Investment advisers whose primary business is the rendering of investment advice Under the Investment Advisers Act of 1940, the term "investment counsel" may only be used by an investment adviser if the giving of advice is the primary business of the firm.

An investment adviser is recommending that a customer buy a security that the adviser will sell to the customer from its own portfolio. Which statement is TRUE? A) This is a "principal transaction" and is prohibited B) This is an "agency cross transaction" and is prohibited C) This is a "principal transaction" and is permitted only if the customer is informed of the circumstances and consents to the transaction D) This is an "agency cross transaction" and is permitted only if the customer is informed of the circumstances and consents to the transaction

C) This is a "principal transaction" and is permitted only if the customer is informed of the circumstances and consents to the transaction If an investment adviser is recommending that a customer buy a security that the adviser will sell to the customer out of its inventory (or vice-versa), this is a principal transaction (the adviser is the "principal," buying the security into its own investment portfolio, or selling the security to the customer from its own investment portfolio). If the adviser is going to act as the principal in a transaction recommended to a customer, it must disclose this fact to the customer prior to the completion of the transaction, and must obtain the consent of the customer to the transaction.

A registered representative with a broker-dealer makes recommendations of securities to a customer, and charges a commission on each trade. Which statement is TRUE? A) This person must register with the State as an investment adviser representative B) This person must register with the State as an investment adviser C) This person is excluded from the definition of an investment adviser D) This person is defined as an investment adviser, but is exempt from registration

C) This person is excluded from the definition of an investment adviser Broker-dealers and their registered representatives are excluded from the definition of an investment adviser as long as they do not charge separately for advisory services. Thus, a broker-dealer can charge a commission on each recommended trade and not be defined as an investment adviser that must register in the State (note however, that it must still register as a broker-dealer in that State).

All of the following statements are true regarding the requirement that an independent public accountant verify the amount of customer funds and securities held in custody by an investment adviser, as required by the Investment Advisers Act of 1940, EXCEPT the: A) audit must be conducted at least annually B) audit must be completed on a surprise basis C) auditor must choose the same date for making a periodic examination D) auditor must file a Form ADV-E with the SEC within 120 days of completing the exam

C) auditor must choose the same date for making a periodic examination Under Rule 206(4)-2 covering advisers that take custody of client funds, such advisers must submit to an annual surprise audit by an independent public accountant that verifies the funds and securities held in custody for customers. After completing the examination, the auditor must sign and file Form ADV-E (as in "Exam") with the SEC within 120 days. The auditor cannot choose the same date each year for doing the audit, since then it would no longer be a "surprise" when he or she showed up at the adviser's office!

The "Brochure Rule" applies to: A) oral advisory contracts only B) written advisory contracts only C) both of the above D) none of the above

C) both of the above The SEC states that the "Brochure Rule" it applies to both oral and written advisory contracts. Note that this does conflict with the Investment Adviser Act of 1940's requirement that advisory contracts be in writing; but this is a later rule, written by someone who wanted the broadest interpretation possible.

Private Fund Advisers: A) are not required to register with the SEC B) must register with the SEC once assets under management reach $100 million C) must register with the SEC once assets under management reach $150 million D) must register with the SEC once assets under management reach $200 million

C) must register with the SEC once assets under management reach $150 million Regular investment advisers must register with the SEC as "Federal Covered Advisers" once assets under management reach $100 million. Private Fund Advisers, who only advise pooled investment vehicles like hedge funds, were exempt from SEC registration until 2012. At that point, they were required to register with the SEC once their assets under management reached $150 million. The intent was to make sure that there was public disclosure about the world of hedge funds.

The use of customer names by an investment adviserto promote the sale of the firm's advisory services is: A) prohibited in all circumstances B) permitted if the adviser notifies each client of its intentions C) permitted if the adviser notifies each client of its intentions and the clients consent to such disclosure D) permitted if the adviser notifies the State Administrator that the client names will be used

C) permitted if the adviser notifies each client of its intentions and the clients consent to such disclosure The use of customer names by an investment adviser to promote the sale of the firm's advisory services is prohibited, unless the customer consents to such disclosure. The only disclosure of customer information that may be made without customer consent is required disclosures to governmental bodies such as the IRS.

An investment adviser representativehas recently passed her Series 7 and Series 66 exams. Which of the following statements can she make to potential clients regarding these registrations? A) "The State Administrator approves of my doing business in each of the States in which I am registered." B) "Because I only recommend investment grade securities, the SEC endorses my activities in each of the States in which I am registered." C) "The SEC or State Administrator views all of the recommendations that I make to be suitable, as long as an investment profile has been completed for each new customer." D) "I am now registered with FINRA and the State"

D) "I am now registered with FINRA and the State" It cannot be stated that "registration" means that the SEC, FINRA or the State Administrator approves of the adviser, or endorses, recommends, or certifies the adviser. It can be stated that the adviser is "registered" - in this case, the IAR is registered in the State, and as a Series 7 representative, this individual is federally licensed as a representative. The federal Series 7 license is given by FINRA, which is an SRO (self-regulatory organization) operating under SEC oversight.

Which of the following is permitted in an investment adviser's advertising under SEC rules? A) A chart showing the previous year's performance of 30% total return, indicating that the trend will continue B) A computer simulation that shows a guaranteed 20% total return C) A testimonial from a customer, where the customer has given written permission for the testimonial's use D) An offer of a list of the investment adviser's prior recommendations, with their performance, over the last year

D) An offer of a list of the investment adviser's prior recommendations, with their performance, over the last year Performance charts can be used in advertising; but they cannot indicate that the trend will continue - since this may not be the case! One cannot guarantee returns, making Choice B incorrect. Testimonials are prohibited in advertising under the Investment Advisers Act of 1940, making Choice C wrong. Offering a list of the adviser's prior recommendations is permitted in advertising; however actually listing specific recommendations in advertising in not permitted.

Which of the following records of an investment adviser that takes custody of customer funds is NOT required to be retained under the provisions of the Investment Advisers Act of 1940? A) Cash receipts and disbursements journal B) Statement of financial position C) Customer account statements D) Beneficiary designations for each customer account

D) Beneficiary designations for each customer account The best answer is D. The records required to be retained by an investment adviser that takes custody include: Cash receipts and disbursements ledger and general ledger Securities received and delivered ledger Purchase and sales ledger (trade ledger) Securities record (a record of each aggregate security position held, broken down by each customer owning part of the position and the physical location of that position) Confirmation copies of all customer trades Customer account statements showing all purchases, sales, securities positions, and cash debits and credits to the account Note that there is no requirement for beneficiary designations to be retained for customer accounts - in most cases, the beneficiary is named in the will when a customer dies.

Which statement is NOT true about enforcement of the Investment Advisers Act of 1940? A) The SEC has the power to collect evidence, subpoena witnesses and to take oaths and affirmations B) The SEC can issue orders denying or revoking registration of an investment adviser C) Orders of the SEC may be appealed by filing a motion in the U.S. Court of Appeals D) The State Court in which the defendant is located has primary jurisdiction in both criminal and civil suits brought under the Act

D) The State Court in which the defendant is located has primary jurisdiction in both criminal and civil suits brought under the Act Regarding the powers of the SEC, it can collect evidence, take oaths and subpoena witnesses; it can issue orders denying or revoking Federal registration (but not State registration, but once the SEC boots an adviser out, the State piles on and boots that guy out of State registration as well). An SEC order can be appealed to the U.S. Circuit Court of Appeals. Since the SEC is a Federal agency, any criminal prosecution comes under the Securities Exchange Act of 1934 and would be pursued in Federal court, not in State court.

Which "soft dollar" remuneration arrangement between an investment adviser and a broker-dealer is prohibited? A) The broker-dealer providing free asset allocation software to the adviser in return for the adviser directing trades to that broker-dealer B) The broker-dealer providing free research reports to the adviser in return for the adviser directing trades to that broker-dealer C) The broker-dealer providing free market timing software to the adviser in return for the adviser directing trades to that broker-dealer D) The broker-dealer providing the services of an on-site research analyst to the adviser in return for the adviser directing trades to that broker-dealer

D) The broker-dealer providing the services of an on-site research analyst to the adviser in return for the adviser directing trades to that broker-dealer "Soft dollar" arrangements between a broker-dealer and either a mutual fund or an investment adviser work as follows: In return for the mutual fund or investment adviser directing its trades to that broker-dealer at full commission rates, the broker-dealer provides "free" services to the mutual fund or investment adviser such as asset allocation software, free research, and market timing software. The SEC permits this as long as the "free services" provided benefit all of the fund's shareholders, or the investment adviser's customers, equally. The SEC feels that these "soft dollar" payments allow smaller research firms to remain in existence, since they can market their services to mutual funds in return for commissions paid by the fund (and ultimately paid by that fund's shareholders). However, these arrangements cannot be used to pay for salaries, hotel and rental car costs, personal travel or entertainment.

An investment adviser includes a list of its "Top Ten" recommendations made over the last year in its advertising. Under the Investment Advisers Act of 1940, which statement is TRUE? A) This is permitted if the adviser gets the permission of the issuers to use their names B) This is permitted if the adviser files the advertisement in advance with the SEC C) This is permitted without restriction D) This is a violation of the Act and is fraudulent

D) This is a violation of the Act and is fraudulent Prior recommendations cannot be shown in investment adviser advertising - doing so is a violation of the Investment Advisers Act of 1940 (but the advertisement can offer to provide a list of prior recommendations upon request, as long as such list shows ALL recommendations made over the last 12 months; the date of the recommendation; the price at that time; the current market price; accompanied by a statement to the effect that "the performance of prior recommendations is not a predictor of future performance").

All of the following are considered to be "giving advice about securities" under SEC Release IA-1092 EXCEPT a person who: A) issues reports about securities to customers B) develops an overall financial plan for customers C) advises customers on the selection of an investment adviser D) advises customers on the selection of a broker-dealer

D) advises customers on the selection of a broker-dealer A person who advises customers on the selection of a broker-dealer to effect their recommended trades is not an investment adviser. However, a person who recommends other investment advisers to customers can be considered by the SEC to be an investment adviser that must register; as can a person who issues reports about securities (for years, the SEC has chased subscription investment newsletters to register as investment advisers - the newsletters claim that they are excluded under the "general circulation publication" exclusion; the SEC claims that they are not a "general circulation newsletter," but rather are circulated only to those buying their investment advice, and thus they should register!) Finally, anyone developing financial plans for customers for a fee, of which securities investments may be a minor part, is defined as an "investment adviser" that must register.

Under the Securities Act of 1933, liability for omissions or misstatements of material fact in a registration statement prospectus rests with: A) the accountants for the issuer B) the officers of the issuer C) the lawyers for the issuer D) every person who signed the documents or who gave an opinion related to the documents

D) every person who signed the documents or who gave an opinion related to the documents Liability for omissions or misstatements of material fact in a registration statement or prospectus rests with every person who signed the documents or who gave an opinion related to the documents. Thus, officers of the issuer (who sign the registration statement) are liable; accountants who give certifying opinions on the issue are liable; and lawyers who render legal opinions on the issue are liable. The issuer itself can be held liable as well - since it received the funds from the securities offering that was made illegally; and these funds must be paid back to the investors.

Investment advisory contracts must conform with all of the following requirements EXCEPT: A) the contract must be in writing B) the fee cannot be based upon capital gains C) the contract cannot provide for assignment to a third party without customer approval D) the fee cannot be based upon the value of assets under management

D) the fee cannot be based upon the value of assets under management It is standard practice for advisory contracts to set fees based upon an annual percentage of all assets under management. Such fees cannot be based on capital gains in the account; the contract must be in writing; and the contract cannot be assigned to a third party without customer approval.

Violations of the Investment Advisers Act of 1940 are punishable by which of the following? Fines of up to $10,000 only Fines of up to $15,000 only Fines of up to $10,000; and up to 5 years in jail Fines of up to $15,000; and up to 5 years in jail

Fines of up to $10,000; and up to 5 years in jail Violations of the Investment Advisers Act of 1940 are punishable by fines of up to $10,000; and up to 5 years in jail. (Note that this differs from Uniform State Law, which imposes fines of $5,000 and jail for up to 3 years for violations.)

Under the Investment Advisers Act of 1940, which of the following are defined as "investment advisers"? I A firm that prepares research reports about the NYSE market II A firm that solely prepares research reports about the municipal securities market III A firm that prepares asset allocation reports covering securities, real estate, commodity and insurance investments IV A firm that prepares reports on the outlook for the U.S. economy

I A firm that prepares research reports about the NYSE market II A firm that solely prepares research reports about the municipal securities market III A firm that prepares asset allocation reports covering securities, real estate, commodity and insurance investments A firm that prepares research reports about the NYSE market or municipal securities is included within the definition of an investment adviser; as is a firm that prepares asset allocation models for investors. A firm that prepares reports about the outlook for the U.S. economy is not giving advice about securities, and thus is not an investment adviser.

Under the Investment Advisers Act of 1940, which of the following persons managing assets of at least $100,000,000 MUST be registered with the SEC? I A person who gives advice solely about listed securities II A person who gives advice solely about municipal securities III A person who gives advice solely about U.S. Government securities

I A person who gives advice solely about listed securities II A person who gives advice solely about municipal securities Excluded from the definition of an investment adviser is any person who renders advice solely about securities guaranteed by the U.S. Government - thus, no registration is required. Note, however, that this exclusion does not apply to persons who render advice about municipal securities; nor does it apply to persons who render advice about listed stocks. Finally, remember that only advisers with $100,000,000 of assets or more under management are required to register with the SEC; those advisers with less than $100,000,000 of assets under management only register with the State; and not with the SEC.

Which of the following statements are TRUEabout the Investment Company Act of 1940's requirements for management companies? I At least 40% of the Board of Directorsmust be "non-interested" persons II At least 60% of the Board of Directors must be non-interested III To establish a fund, a minimum of $10,000 of Total Net Assets is required IV To establish a fund, a minimum of $100,000 of Total Net Assets is required

I At least 40% of the Board of Directorsmust be "non-interested" persons IV To establish a fund, a minimum of $100,000 of Total Net Assets is required The Investment Company Act of 1940 requires that the minimum capital to start a fund is $100,000. It also requires that at least 40% of the Board of Directors be "non-interested parties" - that is, they are not affiliated with the sponsor, custodian, transfer agent, or firms in the selling group.

Under the provisions of Regulation D, which of the following are accredited investors? I Bank II Individual with a $100,000 annual income III Individual with $1,000,000 net worth exclusive of residence IV Investment company

I Bank III Individual with $1,000,000 net worth exclusive of residence IV Investment company Under Regulation D of the Securities Act of 1933, and accredited investor in a private placement is a person who earns at least $200,000 per year; or who has a net worth of at least $1,000,000 exclusive of residence; or is an institution; or is an officer or director of the issuer. A private placement may be sold to an unlimited number of accredited investors under Federal law; but can only be sold to 35 non-accredited investors (also, please note that the State definition of a private placement is very different).

Under the Securities Exchange Act of 1934, which of the following MUST register with the Securities and Exchange Commission? I Broker-Dealers II National Securities Exchanges III Investment Advisers IV Securities Information Processors

I Broker-Dealers II National Securities Exchanges IV Securities Information Processor The Securities Exchange Act of 1934 requires the registration of exchanges and makes them "self-regulatory organizations" under SEC oversight. The Act also requires the registration of broker-dealers, their officers, and their sales personnel. Note that the 1934 Act does not require the registration of investment advisers - instead this is required under the Investment Advisers Act of 1940. Finally, the Act requires the registration of securities information processors.

Which of the following actions by an investment adviser are prohibited under the Investment Advisers Act of 1940? I Making a cash payment to a solicitor that is undisclosed to the customer for signing that customer as an advisory client II Using an advertisement that includes a testimonial from a famous personality III Entering into an oral advisory contract with the customer IV Accepting a prepaid advisory fee from a client

I Making a cash payment to a solicitor that is undisclosed to the customer for signing that customer as an advisory client II Using an advertisement that includes a testimonial from a famous personality III Entering into an oral advisory contract with the customer Prepaid advisory fees are permitted, though the contract must explain how much of the fee will be refunded if the contract is canceled prematurely. Making a cash payment to a solicitor for signing a customer to a contract is permitted only if the payment is disclosed to the customer; and if the customer receives a solicitor's "Brochure" as well as the adviser's "Brochure;" and the customer must sign an acknowledgment that both were received. Oral advisory contracts are not permitted under the Investment Advisers Act of 1940 - they must be in writing (Note, however that the "Brochure Rule," under the Investment Advisers Act of 1940, requires delivery of the "Brochure" at, or prior to, entering into either a verbal or written contract, which is contradictory - but this is the rule!). Testimonials are prohibited in investment adviser advertising.

Under the Investment Advisers Act of 1940, which statements is (are) TRUE regarding the use of advertising? I Past performance may be shown in advertising II Prior recommendations may be shown in advertising III Testimonials may be shown in advertising

I Past performance may be shown in advertising Under the Investment Advisers Act of 1940, testimonials are prohibited in advertising; and the showing of prior recommendations is prohibited in advertising. However, past performance can be shown in advertising as long as there is an accompanying statement about general market conditions during this period; and a disclaimer is included that "past performance does not predict future results."

An advertisement is being prepared by an investment adviser whose principal business is rendering advice to customers. Which of the following statements are TRUE? I Showing past performance is allowed II Showing past performance is prohibited III Testimonials are allowed IV Testimonials are prohibited

I Showing past performance is allowed IV Testimonials are prohibited Past performance may be shown in an advertisement, as long as there is the disclaimer that "past performance does not predict future results." Specific prior recommendations cannot be shown; however, illustrative charts can be used. Paid testimonials are prohibited in investment adviser advertising.

A person who is in the business of giving advice about which of the following is defined as an "investment adviser" under SEC Release IA-770? I Stocks II Corporate bonds III Commodities IV Real Estate

I Stocks II Corporate bonds To be defined as an investment adviser that must register with the SEC, one must be giving advice about securities. Stocks and bonds are securities. Commodities and real estate are not securities. If one gives advice about commodities or real estate, that person is NOT an investment adviser.

Which statements are TRUE regarding the following? "The adviser shall not be liable for any loss or depreciation in the value of the account unless it shall have failed to act in good faith or with reasonable care." I This is an example of a hedge clause in an investment advisory contract II This is an example of a fiduciary clause in an investment advisory contract III This clause is misleading and fraudulent IV This clause does not misstate the adviser's fiduciary obligations to its clients

I This is an example of a hedge clause in an investment advisory contract III This clause is misleading and fraudulent Investment advisers have attempted to use contractual language that seeks to limit or entirely avoid civil liability - these are known as "hedge clauses." Generally speaking, such hedge clauses are prohibited. Under both Federal and Uniform State Law, an investment adviser that is a fiduciary may be subject to civil liability - even if he or she acted in good faith and with reasonable care!!! Advisers are held to an affirmative duty of utmost good faith and full and fair disclosure when dealing with clients - so it could be the case that the adviser acted in "good faith" but was not acting strongly enough in "good faith" - and so is subject to civil liability (yes, many questions on this exam are written by state securities attorneys). The only acceptable hedge clause is one that limits liability only in situations outside the adviser's control - such as war, terrorism, new government restrictions, natural disasters, etc.

Under the Investment Adviser's Act of 1940, an investment adviser that advertises itself as a "fee only" adviser would be permitted to collect: I a fee charged for each hour of work performed for the client II a fee based on asset performance in that client's account for wealthy investors III 12b-1 fees from mutual funds recommended to that client IV a fee based on assets held under management in that client's account

I a fee charged for each hour of work performed for the client II a fee based on asset performance in that client's account for wealthy investors IV a fee based on assets held under management in that client's account Advisers that are "fee only" can charge hourly fees, fees based on a percentage of assets under management, and can charge performance fees - but only for wealthy investors (those with either at least $1,000,000 under management or a net worth of $2,100,000 as permitted under the Investment Advisers Act of 1940). (Note: The dollar threshold for qualified customers is adjusted upwards for inflation every 5 years. The next adjustment is scheduled for mid-2021.) An adviser that advertises itself as a "fee only" adviser cannot be compensated from the sale of products that it recommends. It cannot charge commissions on transactions, nor can it receive 12b-1 fees, which are basically annual commissions paid by a mutual fund to the broker-dealer or advisory firm that placed the customer into the fund. In both of these cases, the adviser has an incentive to either actively trade the customer's account in order to receive higher commissions or to place the customer only in those mutual funds that will pay 12b-1 fees to the adviser. A "fee only" adviser is supposed to be completely unbiased in its selection of securities for the customer and the frequency with which it trades the customer's account.

If a solicitor works for an investment adviser, selling that firm's advisory services to customers, then the customer MUST: I be given the investment adviser's brochure II be given the solicitor's brochure III sign an acknowledgment of receipt of the brochure(s)

I be given the investment adviser's brochure II be given the solicitor's brochure III sign an acknowledgment of receipt of the brochure(s) If an investment adviser wishes to use a solicitor to sell its advisory services, it may do so as long as the adviser is registered with the SEC; there is a written agreement between the solicitor and the investment adviser; the solicitor agrees to provide to customers the investment adviser's "Brochure" in compliance with the "Brochure Rule;" the solicitor agrees to provide its own "Brochure" that describes the nature of the relationship between the solicitor and the adviser; and the fact that the adviser is paying the solicitor; and that this may result in a higher cost to the customer. Finally, the adviser must obtain written acknowledgment from the customer, that both brochures were received.

An investment adviseris selling a Wrap Account where the assets are held in custody of the advisory firm. The Wrap Fee Brochure must include: I information on investment advisory fees II information on participation or interest in client transactions III the balance sheet of the investment adviser

I information on investment advisory fees II information on participation or interest in client transactions III the balance sheet of the investment adviser Under the Investment Advisers Act of 1940, the investment adviser brochure must be delivered to clients, at or prior to, entering into a contract to provide advisory services. It details, among other things, the fees charged and conflicts of interest (Choices I and II). A copy of the investment adviser's balance sheet is included in the brochure if the adviser will take prepaid advisory fees of $1,200 or more, 6 months or more in advance of rendering services.

The use of a third party solicitor by an Investment Adviser: I is permitted if there is a written agreement between the solicitor and investment adviser II is not permitted if the solicitor is subject to statutory disqualification as defined under the Investment Advisers Act of 1940 III requires that the solicitor be registered with the investment adviser as that firm's representative in that State IV requires that the solicitor be registered as either an investment adviser or an investment adviser representative in that State

I is permitted if there is a written agreement between the solicitor and investment adviser II is not permitted if the solicitor is subject to statutory disqualification as defined under the Investment Advisers Act of 1940 IV requires that the solicitor be registered as either an investment adviser or an investment adviser representative in that State A solicitor for an investment adviser does not have to be an employee of that advisory firm. For example, an investment adviser could retain an independent CPA to refer clients that could benefit from the adviser's services. To do so, there must be a written agreement between the solicitor (the CPA in this case) and the investment adviser. The adviser is prohibited from retaining a person as a solicitor if that person is subject to "statutory disqualification" under the Investment Adviser's Act of 1940 - which basically means that this person is likely to be a risk to investors. An individual is subject to such disqualification if he or she is under suspension or has been expelled by another regulator; if he or she has been enjoined in a court of law from being in the securities business; or if he or she has been convicted of a misdemeanor or felony involving securities or monies within the past 10 years. The solicitor does not have to be an employee of the adviser nor does he or she have to be registered as an adviser representative of that adviser. There are independent solicitors (such as CPAs) that refer clients to advisers for a referral fee. However, to act as a solicitor requires that the individual (the CPA in this case) either be registered in that State as an investment adviser (which the CPA can do by him- or herself) or be registered as an investment adviser representative (which could be done by that individual registering through any adviser registered in that State).

if an investment adviserwishes to take custody of client funds or securities: I the investment adviser must be audited, on a surprise basis, at least annually II customers must receive account statements at least quarterly III prior permission from the SEC must be obtained

I the investment adviser must be audited, on a surprise basis, at least annually II customers must receive account statements at least quarterly If an investment adviser wishes to take custody of client funds or securities, all customer funds must be maintained in a bank account or securities account that is separate from the adviser's personal accounts. Customers must receive notification of the name and location where the funds and securities are being held. Customers must receive account statements at least quarterly. Finally, the adviser must be audited, on a surprise basis, at least annually - with a copy of the audit report filed with the SEC. Note, however, that there is no requirement for prior permission of the SEC for an adviser to take custody of customer funds or securities.

Which of the following statements are TRUE regarding an investment adviser rendering advice solely to an investment company? The investment adviser: I must register with the State II is exempt from registering with the State III must register with the SEC IV is exempt from registering with the SEC

II is exempt from registering with the State III must register with the SEC Advisers that manage $100,000,000 or more of assets; or that render advice to investment companies; or that are not regulated at the State level; must register with the SEC only. These advisers are known as "federal covered" advisers. An investment adviser to an investment company (regardless of the dollar amount) need only register with the SEC; and is exempt from registration in the State. One of main intents of the Investment Advisers Act of 1940 was to register advisers to investment companies and place limits on their compensation.

Which of the following statements concerning the capitalization of open-endand closed-end investment companiesare TRUE? I Open-end companies make a one-time public offering of a fixed amount of their shares II Closed-end companies make a one-time public offering of a fixed amount of their shares III Open-end company shares trade on exchanges or OTC IV Closed-end company shares trade on exchanges or OTC

II Closed-end companies make a one-time public offering of a fixed amount of their shares IV Closed-end company shares trade on exchanges or OTC Open-end companies (mutual funds) offer their shares for sale continually and redeem shares continually. There is no trading of mutual fund shares. Closed-end companies (exchange traded funds) make a one-time initial public offering of shares; the books are closed to new investment; and the shares are listed on an exchange and trade like any other stock. Closed-end fund shares are negotiable; they are not redeemable.

Institutional investment managers MUST file a Form 13F with the SEC: I Monthly II Quarterly III Within 10 business days of the due date IV Within 45 calendar days of the due date

II Quarterly IV Within 45 calendar days of the due date The Form 13F (as in "Fund") is filed with the SEC by mutual funds that have at least $100,000,000 of assets under management. It discloses all of the fund's holdings and is filed within 45 calendar days of quarter-end.

Under the Investment Advisers Act of 1940, the SEC policy regarding emails maintains that: I business related emails are required to be recorded and maintained II both business related and personal emails are required to be recorded and maintained III records must be retained for 3 years IV records must be retained for 5 years

II both business related and personal emails are required to be recorded and maintained IV records must be retained for 5 years SEC rules require that both personal and business emails must be retained by investment advisers as a required record. Their view is that it is too easy for someone to send a business email from a personal electronic device or vice-versa. All records must be retained for 5 years under the Act.

Under the Investment Advisers Act of 1940, copies of all advertising, notices and circulars must be retained: I if distributed to at least 1 person II if distributed to at least 10 people III for a minimum of 3 years IV for a minimum of 5 years

II if distributed to at least 10 people IV for a minimum of 5 years The Investment Advisers Act of 1940 requires that copies of advertising, notices and circulars be retained as a record for 5 years if distributed to 10 or more people.

Prior to the filing of a registration statement, which of the following activities is (are) permitted? I A member firm signing a syndicate agreement to become part of the underwriting group for the issue II A member firm distributing preliminary prospectuses for the issue to customers III A member firm taking indications of interest for the issue from customers IV A member firm selling the issue to customers

ONLY --> I A member firm signing a syndicate agreement to become part of the underwriting group for the issue Prior to the filing of a registration statement, the issue cannot be promoted in any manner - so the use of a preliminary prospectus to take indications of interest is prohibited; as is selling the issue. Once the registration statement is filed, the issue enters the 20-day cooling off period. At this point, a preliminary prospectus can be used to take indications of interest, but the issue cannot be sold. Once the registration is effective, the issue can be sold with the prospectus. There is no prohibition on the underwriter joining the syndicate or selling group prior to the filing of the registration statement, since this does not involve offering the issue to the public.

Under the Securities Act of 1933, which statements is (are) TRUE regarding private placements of securities? I No commissions can be paid II No more than 10 prospective investors may be contacted III General advertising is prohibited

ONLY --> III General advertising is prohibited Under the Uniform Securities Act, a private placement is an offering to no more than 10 persons, where no advertising is permitted; and no commissions can be paid for selling the issue. Note that the definition of a private placement under the Securities Act of 1933 is very different. Regulation D under the 1933 Act states that a private placement is an offering to a maximum of 35 non-accredited investors and an unlimited number of accredited investors. There is no prohibition against paying commissions for selling private placements under the 1933 Act. Similar to State law, Federal law also prohibits advertisements of private placements. (Note that an exception to the "no advertising" prohibition is given if an offering is only made to accredited investors - however, this is not mentioned in the question and cannot be assumed.)

Who administers the Investment Advisers Act of 1940?

SEC The Investment Advisers Act of 1940 is administered by the SEC. FINRA only regulates broker-dealers, not investment advisers. The MSRB (Municipal Securities Rulemaking Board) writes rules for the municipal market. NASAA is the North American Securities Administrators Association. Each State Administrator administers the Uniform Securities Act - the State "Blue Sky Laws" that require registration of broker-dealers, their agents, non-federal covered advisers, and investment adviser representatives, in each State where they deal with the public.

All of the following would be considered to be securities information processor sunder the Securities Exchange Act of 1934 EXCEPT: NYSE TRF Pink Sheets The Wall Street Journal NASDAQ TRF

The Wall Street Journal Securities information processors (SIPs) collect and disseminate price quotes and transaction prices in non-exempt securities. Each exchange has a "TRF" - a Trade Reporting Facility - that is a registered SIP. The NYE TRF reports trades of NYSE listed stocks, wherever the trade occurred. The NASDAQ TRF reports trades of NASDAQ-listed stocks, where the trade occurred. The Pink Sheets is an SIP that distributes bid and ask quotes for over-the-counter stock issues, as does the OTCBB - the Over-The-Counter Bulletin Board. General circulation newspapers are not defined as securities information processors that must register with the SEC under the Securities Exchange Act of 1934.

An order to buy a new issue that has not been registered with the SEC can be accepted if the issue is: exempt non-exempt sold to professional investors offered in no more than 5 States

exempt Orders to buy a new issue that is not registered with the SEC can only be accepted if the security is exempt; or if the security is sold in an exempt transaction, such as a private placement. There is no professional investor exemption; nor is there a federal exemption available if the offering is sold in no more than 5 States.

Under the Investment Company Act of 1940, an affiliated personis prohibited from doing which of the following? I Borrowing monies from the fund II Borrowing securities from the fund III Buying securities personally from the fund's portfolio IV Selling securities personally to the fund's portfolio

all Affiliated persons of investment companies (the officers, employees, and 5% shareholders of the fund) are prohibited from borrowing monies from the fund; from borrowing securities from the fund; or from buying securities personally from the fund's portfolio or selling securities personally to the fund's portfolio. In all of these instances, the affiliated person is in a position to effect such transactions at overly favorable terms - since there is no "arm's length." There is no prohibition on these persons buying the shares of the fund - in this case they buy at Net Asset Value (plus a sales charge, if any) - just like any other customer.

Under the Investment Advisers Act of 1940, an investment adviser MUST inform its customers if it will be compensated by which of the following? I The issuer for recommending its securities to the adviser's clients II A broker-dealer for recommending the use of that firm to execute portfolio transactions of the adviser's clients III An insurance company for the recommendation of insurance products to the adviser's clients

all If an investment adviser receives compensation from anyone other than the customer; related to the rendering of advisory services to that customer; this must be disclosed to the customer. If the investment adviser recommends the use of a broker-dealer to effect recommended trades, (which it will do if the broker-dealer compensates the adviser for these trades); it must inform the customer that any broker-dealer can perform these transactions. The customer does not have to effect these trades through the broker-dealer favored by the investment adviser.

Under SEC Release IA-1092, which of the following would be required to register with the SEC as investment advisers? I A Certified Financial Planner who only provides general financial planning for a fee; but who does not take commissions on recommended transactions II An attorney who manages the business affairs of athletes for a fee III An accountant who manages the business affairs of entertainers for a fee IV An economist who gives advice to pension plans for a fee on the outlook for the securities markets

all Investment adviser Release IA-1092 specifically includes advisers to entertainers and athletes, and advisers to pension plans, as investment advisers that must register with the SEC. In addition, the SEC in this release, states that a financial planner that provides general financial planning for a fee comes under the definition and must register with the SEC. It makes no difference whether or not the financial planner takes commissions on recommended trades - if this person gives general "non-specific" advice for a fee, he or she is still considered to be an "investment adviser" that must register.

Disclosure of which of the following is made in a Form ADV Part 2 that is filed with the SEC under the Investment Advisers Act of 1940? I Description of how fees are assessed II Method of analysis used III Educational background of applicant IV Balance sheet of applicant if the firm takes custody of client funds or accepts $1,200 or more of prepaid advisory fees

all The Form ADV Part 2 is broken down into Part 2A, which details the adviser's business, analytic methods, types of clients, assets under management, fees, conflicts of interest, etc. Part 2A must include a balance sheet of the firm if it will take custody of customer funds or securities; or will accept $1,200 or more of prepaid fees, 6 months or more in advance of services rendered. This is the "Brochure" that must be given to customers at, or prior to, entering into an advisory contract. Part 2B is the "Brochure Supplement" that must be delivered to new customers at the same time as Part 2A. Part 2B details the educational and work background of the key personnel who set investment strategy or manage accounts.

Under the Securities Act of 1933, which of the following sign a registration statement for a new issue? I CEO of the issuer II CFO of the issuer III Members of the Board of Directors of the issuer

all The registration statement is signed by the Officers of the issuer; the Board of Directors of the issuer; and the accountants and lawyers for the issue sign their respective accounting and legal opinions.

Under the Investment Advisers Act of 1940, if there are material changes, existing customers of investment advisers MUST be sent a revised "Brochure" at least: monthly quarterly semi-annually annually

annually Existing customers must be sent an updated "Brochure" at least annually if there are material changes. As an alternative, the customer can be sent the "Summary of Material Changes" section of the current brochure along with the offer of the revised Brochure.

12b-1 fees are assessed by investment companies: when shares are purchased when shares are redeemed when shares are exchanged as shares are held

as shares are held SEC Rule 12b-1 allows management companies to charge against total net assets, an annual fee for the cost of soliciting new investors to the fund. In reality, though the fee is expressed as an annual percentage of total net assets, it is imposed pro-rata for every day that the investor holds the shares.

An investment adviser can hold all of its customer securities in a single brokerage account without identifying the individual customers to the brokerage dealer: in an omnibus account in a joint account - tenants in common in a prime brokerage account under no circumstances

in an omnibus account Investment advisers that take custody will typically open a brokerage account to hold all customer securities positions. If the investment adviser opens an "omnibus account," then the clients' funds and securities are held together in 1 account, where the broker-dealer does not know the identity of the IA's clients. In such an arrangement, it is the responsibility of the IA to send out customer account statements and trade confirmations, since the broker-dealer does not know who the individual customers are. Prime brokerage is used by hedge funds, where the hedge fund uses a clearing "prime broker" to settle all trades and maintain custody of the positions. However, the prime broker agrees to accept trade executions from a list of broker-dealers given up by the hedge fund. In this way, a hedge fund can route its trade executions to differing brokers in return for getting research and investment insight from those firms.

All of the following are disclosed in an investment adviser registration under the Investment Advisers Act of 1940 EXCEPT: compensation basis to the investment adviser approximate market value of portfolios managed approximate number of advisory clients names and addresses of advisory clients

names and addresses of advisory clients The names and addresses of the adviser's clients are not in the Form ADV filed with the SEC. However, the approximate number of clients; approximate market value of portfolios managed; and the compensation basis to the adviser are all disclosed in the Form ADV.

An investment adviser is a private fund adviser that is not required to register with the SEC. In order to maintain its exempt adviser status, it can only solicit investors who are: sophisticated qualified accredited registered

qualified Under the Investment Advisers Act of 1940, "private fund advisers" with less than $150 million of assets under management are exempt from registering with the SEC. A "private fund" is defined as one that would require registration with the SEC as an investment company, but it is not required to do so because either: it does not publicly offer its securities and has 100 or fewer beneficial owners of its securities (this is the typical structure for a hedge fund); or it does not publicly offer its securities and only limits its owners to qualified purchasers. To be a "qualified purchaser" is tougher than being an accredited investor under Regulation D. A qualified purchaser is an individual or trust with at least $5 million of assets available for investment; or an investment manager or company with at least $25 million of assets available for investment. In contrast, an accredited investor under the Regulation D Private Placement rule is an individual with $200,000 of annual income; a married couple with $300,000 of annual income; and individual with a net worth of $1,000,000; or an investment manager with at least $5,000,000 of assets available for investment.

Under the provisions of the Investment Advisers Act of 1940, if an adviser takes custody of customer funds or securities, account statements MUST be sent to the customer: upon written request monthly quarterly semi-annually

quarterly The Investment Advisers Act of 1940 requires that if an adviser takes custody of customer funds or securities; account statements must be sent to the customer by the adviser at least quarterly.

All of the following are covered under the Securities Exchange Act of 1934 EXCEPT: registration of new issues registration of broker-dealers registration of insiders registration of securities information processors

registration of new issues Registration of new issues comes under the Securities Act of 1933, which regulates new issue offerings. The Securities Exchange Act of 1934 requires the registration of exchanges, member firms, salespersons, transfer agents, clearing organizations, securities depositories and securities information processors. It also requires that "insiders" (officers, directors and holders of 10% or more of a publicly held company) file notices with the SEC.

"Small Dollar Offerings" are given an exemption from registration under the Securities Act of 1933 under the provisions of:

regulation A Under Regulation A - Small Dollar Offerings - an issuer can sell up to $50,000,000 of securities within a 12-month period under an exemption from registration.

The Code of Ethics required to be written and adhered to by each investment adviser must cover all of the following topics EXCEPT: insider trading front running trading ahead of research short selling

short selling The Investment Advisers Act of 1940 requires that investment advisers adopt a written Code of Ethics that covers permitted and prohibited actions on the part of its officers and employees. The Code of Ethics must specifically cover the prohibited practices of front running customer orders, the "trading ahead of research prohibition" and the insider trading laws, since the larger investment advisers are in a position to obtain information about issuers that is not generally available to the public, and they cannot trade on this information until it is publicly released. Short selling is a legal practice of speculating on the price of a security declining and is not unethical.

An investment adviser to a hedge fund with $200 million of AUM has invested 50% of fund assets in gold, anticipating a stock market decline and flight to safety by investors. The investment adviser must register: with the SEC with the CFTC in the State where the IA is physically located with the SEC, CFTC and the State where the IA is physically located

with the SEC A private fund adviser with at least $150 million of assets under management (AUM) must register with the SEC, and therefore will not register with any State. When counting AUM, all assets are counted, regardless of how they are invested. The CFTC is the Commodities Futures Trading Commission - never an answer on these exams!