Section 1

ABC Securities is a 2-office broker-dealer in Idaho that intends to underwrite an initial public offering of one million shares of stock for Circular, Inc. If the issue will be offered exclusively to residents of Idaho, registration of this offering: A) will most likely occur by qualification. B) will most likely occur by coordination. C) is not required because of the de minimis test. D) will most likely occur by notice filing.

A An issue done solely within 1 state (intrastate offering) is registered using qualification. Notice filing is used by certain issues of federal covered securities, primarily investment companies. Coordination is the simultaneous registration on both the federal and state level; neither of those 2 could possibly apply to the Circular offering.

An individual has been employed by a broker-dealer to make cold calls to solicit prospects for the firm's new wrap fee program. Under the USA, this individual I. must obtain registration as an investment adviser representative II. must obtain registration as an agent of the broker-dealer III. is not required to obtain any registration because he is only making cold calls IV. must be adequately supervised A) III and IV B) I and IV C) II and III D) I and II

B. Broker-dealers offering wrap fee programs must also have registration as an investment adviser. Under the USA, those individuals who solicit on behalf of an IA must register as IARs. If there was an indication in the question that the individual would be receiving compensation from the sale or purchase of securities, then registration as an agent would also be required. Of course, the activities of any employee of any type, must always be under proper supervision.

A client of a broker-dealer files a civil suit claiming damages for sale of an unregistered security. During the proceedings, the client suffers a fatal stroke. The suit: A) is continued by the deceased's spouse. B) is dismissed. C) is continued by the deceased's executor. D) has no basis, as a civil suit may not be brought for this reason.

C. Death of a party to a suit does not end the suit. Unless the account was specified as a joint account with rights of survivorship, the executor of the deceased's estate will continue the suit.

The Investment Advisers Act of 1940 addresses all of the following EXCEPT the: A) establishment of procedures for registration of investment advisers. B) the establishment of standards of ethical conduct for investment advisers. C) registration of new issues of securities sold by investment advisers. D) registration of individuals who are in the business of giving investment advice

C. The Investment Advisers Act of 1940 does not establish registration procedures for the sale or issuance of securities, but it does establish requirements for the registration of persons who are in the business of giving investment advice. The Securities Act of 1933 regulates the issuance of new corporate securities.

If the Administrator has summarily suspended an investment adviser representative's registration, the registrant may request a hearing by written request and the hearing will be granted within: A) 45 days. B) 60 days. C) 15 days. D) 30 days.

C. When an Administrator summarily suspends a registration, the registrant has a right to a hearing if the request is made in writing. The hearing must be granted within 15 days of receipt of the request. Registration of professionals takes place at noon of the 30th day and an appeal for review of an Administrator's order must be filed within 60 day

One of the features of a broker-dealer is that they sometimes maintain an inventory of securities, even when not in the role of market maker. If a broker-dealer has shares of a somewhat speculative, thinly traded stock in their inventory whose last reported trade was several days ago at $4 per share and the firm were to offer their shares at $10 per share, the NASAA Statement of Policy on Dishonest and Unethical Business Practices of Broker-Dealers and Agents might consider: A) this may only be done if the broker-dealer makes adequate disclosure to clients who purchase the stock. B) this prohibited because broker-dealers may not offer stock to the public from their own inventory. C) this prohibited because the offering price does not bear a reasonable relationship to the current market. D) this not prohibited because with thinly traded stocks, one expects there to be a wide spread.

C. Yes, it is always possible that in just a couple of days, this company's stock may have increased by 250%, but there is nothing in the question to indicate that. Yes, thinly traded stocks tend to have wider spreads, but not like this.

To be in compliance with the Investment Company Act of 1940, it is permissible for the portfolio manager of an open-end investment company to buy all of the following securities EXCEPT: A) high yield bonds. B) call options. C) stock on margin. D) shares of other mutual funds.

C. The Investment Company Act of 1940 generally prohibits mutual funds from making purchases on margin. There are exceptions to this rule, such as in the case of hedge funds. A fund is not prohibited from buying options or low-quality bonds. A mutual fund may invest in other mutual funds so long as it does not acquire more than 3% of the outstanding shares of the other fund.

A broker-dealer having no place of business in a state is not required to be registered in that state if the broker-dealer: A) is a member of FINRA. B) is a member of the New York Stock Exchange. C) is licensed/registered in its state of residence. D) does no business in that state other than with institutional clients.

D. A broker-dealer must be registered in every state it sells or offers to sell securities, unless an exemption is available. If a broker-dealer has no office in a particular state and no business is done in that state other than with institutional clients, registration there is not required.

With regard to the Uniform Securities Act, which of the following statements regarding the omission of a material fact by an agent is NOT true? A) It is a violation even if the client failed to make a transaction. B) It is a violation because it is a unethical or fraudulent practice. C) It is a violation even if material facts were unknowingly omitted. D) It is not a violation if the security is exempt from registration under the Uniform Securities Act.

D. Deliberate omission of material facts is a fraudulent practice under the Uniform Securities Act, whether securities are exempt or nonexempt or even if the transaction was exempt. If done unknowingly, then it is a unethical business practice (fraud requires deliberate action) and is still a violation.

Under which of the following conditions may an agent sell an unregistered nonexempt security? A) Only to a noninstitutional client. B) Never. C) When the broker-dealer employing the agent has no office in the state. D) If the order was unsolicited.

D. Agents may accept unsolicited orders from clients, institutional or not, in unregistered nonexempt securities. If the transaction is with an institutional client, it can be solicited. In the case of unsolicited orders, the Administrator may demand written acknowledgement from the client that, in fact, the order was unsolicited.

A customer has filed a complaint with the Administrator that alleges churning in his account. When investigating the case, mitigating factors would include all of the following EXCEPT: A) account activity. B) objectives of the client. C) character of the account. D) the length of time the business relationship has existed.

D. Regardless of long the account has been open, or how well you know the client, this is not a reasonable defense for churning.