Series 63, QBank Missed Questions 2

Under the Uniform Securities Act, which of the following best describes the obligations of an issuer of a stock listed on the NYSE? A) They are exempt from filing a notice with the state, but must not make any misrepresentations in the sale of their security. B) There is no obligation because the issuer is excluded from the definition of broker/dealer. C) They must register with the state and must not make any misrepresentations in the sale of their security. D) As a federal covered security, they are exempt from all of the provisions of the Act.

A (17-Ex13)

An IAR with a federal covered adviser is also an agent with a broker/dealer. When dealing with advisory clients, all of the following are true EXCEPT: A) the IAR must disclose that he is liable for any losses suffered in the account due to poor portfolio performance. B) the IAR must disclose that he may earn commissions in addition to the fees charged for advice. C) the IAR must disclose that the financial planning services he offers are separate from the broker/dealer. D) the IAR must disclose that trades will be executed through his broker/dealer unless the client elects otherwise.

A (31-Ex11)

Under the USA, each of the following is specifically excluded from the definition of a broker/dealer EXCEPT an: A) investment adviser. B) issuer. C) international bank. D) agent.

A (46-Ex12)

Sarah has not yet passed the Series 63 exam. As Jack's assistant, Sarah has frequent telephone contact with Jack's customers to whom she provides account information and current stock quotes. In this situation Sarah is: A) not in violation of any applicable statutes. B) in violation of the Securities Exchange Act of 1934. C) in violation of the Securities Act of 1933. D) in violation of the Uniform Securities Act.

A (60-Ex8)

All of the following are prohibited transactions EXCEPT: A) executing a transaction in a nonexempt security in a discretionary account. B) sharing in profits of an account as a reward for the agent's recommendations exceeding the S&P 500. C) failing to record exempt transactions on the broker/dealer's books and records. D) trading in the account of a conservative client exclusively in speculative public offerings with proper trading authorization from the client.

A (7-Ex11)

Which of the following is defined as fraud under the Uniform Securities Act? A) An agent engages in transactions that his state legislature has declared fraudulent but no judicial body or case law has found such transaction to be fraudulent. B) An agent sold securities that were discovered to be fraudulent 4 years after the sale. C) An agent unknowingly sells an unregistered nonexempt security in which the client loses a large portion of his net worth. D) An agent unknowingly offers for sale a security that enhances the wealth of his clients in a transaction prohibited by the state Administrator.

A (Ex10-11)

Which of the following statements regarding Form ADV Part 2 is TRUE? A) It must be made available to clients annually. B) It must be delivered no later than receipt of the client's funds. C) It must be delivered no later than 48 hours prior to entering into an investment advisory contract. D) It must always accompany the investment adviser's brochure.

A (The ADV Part 2, or brochure, must be made available to clients on an annual basis. If it is not delivered 48 hours in advance of the initial contract, the client has a 5-day termination clause. It does not accompany the brochure-it is the brochure.) (43-Ex9)

An interest in which of the following is a security under the Uniform Securities Act? I. Merchandising marketing scheme. II. Multilevel distributorship arrangement. III. Oil and gas drilling program IV. Cattle feeding program.

All (6-ex8)

Under the Uniform Securities Act, any securities registration statement must include: I. the amount of securities to be offered in that state. II. a list of the other states in which the security will be registered. III. a copy of the prospectus or offering circular.

All. (48-ex8)

Under the Uniform Securities Act, the definition of an investment adviser does NOT include: I. investment adviser representatives. II. lawyers and accountants whose investment advisory services are solely incidental to their practices. III. broker/dealers who offer investment advice on an incidental basis without special compensation for the advice provided. IV. federal covered investment advisers.

All. (57-Ex12)

All of the following information would be found on a trade ticket EXCEPT: A) the time of order entry. B) the price of the security at the time of the order. C) the customer account number. D) was the order solicited or unsolicited.

B (31-Ex13)

A registered investment adviser advertises that it is offering a free 6-month subscription to their advisory newsletter. Which of the following qualifiers is acceptable under NASAA's Statement of Policy on Unethical Business Practices of Investment Advisers? A) Your free subscription will start once you have furnished us with the names and addresses of three of your friends. B) Your free subscription will start once we have received your name and mailing or email address. C) Your free subscription will start after your 3rd trade with our affiliated broker/dealer. D) Your free subscription will start upon receipt of your completed financial profile.

B (45-Ex11)

Under the Uniform Securities Act, which of the following is NOT a requirement for a preorganization subscription to be an exempt transaction? A) There may be no more than ten subscribers. B) No payment may be made by any subscriber. C) The offer of the security may not be advertised. D) No commission may be paid to anyone for soliciting potential subscribers.

B (Ex20-11)

Which of the following is NOT acting in the capacity of an agent under the Uniform Securities Act? A) An individual working for a broker/dealer who sells commercial paper to wealthy individuals. B) An individual who sells foreign securities required to be registered with the state. C) A broker/dealer who transacts business with the general public. D) A natural person who sells variable life insurance policies as an employee of a life insurance company authorized to do business in this state.

C (37-ex8)

If AAA Investment Advisers has a performance-based fee compensation arrangement with the multimillion dollar RRR Family Foundation, which of the following must be stated in the written agreement? A) AAA Advisers may receive increased compensation as a result of unrealized appreciation and capital gains. B) The AAA Advisers fee arrangement may create incentives to make investments in more speculative securities than would be the case without a performance fee. C) AAA Advisers will compute the advisory fee on the basis of the gains, less the losses in the client's account over a period of no less than 1 year. D) AAA Advisers will not invest in securities with volatility exceeding that of the Dow Jones Industrial Average.

C (45-Ex13)

Under the Uniform Securities Act, the Administrator may designate another officer to: A) grant registration exemptions. B) set recordkeeping requirements. C) serve subpoenas. D) issue a cease and desist order.

C (56-Ex9)

Under the Uniform Securities Act, an officer who sells an issuer's nonexempt securities to the public is considered: A) not to be an agent of the issuer but subject to civil penalties under the USA. B) an agent of the issuer subject to registration. C) an agent of the issuer not subject to registration. D) not to be an agent of the issuer.

C (63-Ex9)

A broker/dealer is registered in State X. It has no offices in State Y, although it does do business in that state. Under the Uniform Securities Act, registration in State Y is required if the client is a(n): A) bank. B) issuer. C) state employee. D) broker/dealer.

C (64-Ex9)

A person makes a sale that is in violation of the anti-fraud provisions of the Uniform Securities Act. Which of the following is not a true statement? A) The anti-fraud provisions apply to exempt transactions. B) The anti-fraud provisions apply to both exempt and non-exempt securities. C) If the sale is made by someone not in the securities business, the anti-fraud provisions do not apply. D) If the sale is made by an agent registered in another state but not in this state, the anti-fraud provisions apply.

C (65-Ex8)

An income-oriented customer has a discretionary account with an agent. If the agent purchases speculative growth stock on behalf of the customer, under the Uniform Securities Act, this is considered a(n): A) acceptable transaction. B) wash sale. C) unsuitable transaction. D) matching activity.

C (8-Ex9)

Sharon Smith is an agent for Highwater Securities, a broker/dealer registered in all 50 states. Sharon receives an unsolicited order from a bank located in State X, a state in which she has no place of business. Under the Uniform Securities Act, A) because Sharon has no place of business in State X and the order is unsolicited, Sharon may accept the order without registering in State X. B) because Highwater Securities is registered in all 50 states, Sharon must also be registered in all of them. C) Sharon must be registered in State X in order to accept the order. D) because Sharon has no place of business in State X and the client is an institution, Sharon may accept the order without registering in State X.

C (Regardless of whether the security is exempt or the transaction is exempt, one must be licensed in any state which is the domicile of a client placing an order. One does not have to be registered as an agent in every state the B/D is, only in those where she expects clients to reside.) (16-Ex8)

Which of the following statements regarding an agent's registration is CORRECT? A) If the broker/dealer with which that agent is registered should have its registration revoked, the agent's license will be held by the Administrator and the agent will be required to register with an active broker/dealer within 30 days. B) If the broker/dealer with which that agent is registered should have its registration revoked, the agent may continue to do business only with existing clients and may not acquire any new ones until registered with an active broker/dealer. C) Registration of a broker/dealer in a specific state automatically registers all of the firm's agents in that state as well. D) Revocation of the registration of that agent's broker/dealer will result in cancellation of that agent's effective registration.

D (32-Ex9)

An individual functioning as an investment adviser representative for a federal covered adviser, with no place of business in this state, would be required to register in this state if: A) he only dealt with investment companies located in the state. B) he had a time-share in the state. C) the investment adviser had a small office in the state. D) he made frequent sales trips to the state.

D (35-ex8)

Under the Uniform Securities Act, which of the following is TRUE regarding civil liability of agents? A) An agent may be sued up to five years after a sale is made. B) The Administrator may file a civil lawsuit to recover damages on behalf of wronged investors. C) The amount a customer may recover is limited to the amount paid for the security plus interest. D) Persons who control a civilly liable person may also be sued to recover damages.

D (36-ex8)

Bryan, an agent registered with a broker/dealer, buys 1,000 shares of XYZ Corp. in his own account. In recommending XYZ Corp. to his customers, Bryan informs them that he believes in the company so much that he put his own money in the stock. This practice is: A) only problematic if Bryan sells his shares after informing the other investors. B) only problematic if investors lose money in the investment. C) an illegitimate sales tactic. D) not an unethical sales practice.

D (51-Ex8)

Which of the following securities is NOT exempt from the registration procedures of the Uniform Securities Act? A) General obligation bonds issued by a city located in this state. B) Bonds issued by a church operating as a nonprofit organization under IRS Code Section 501(c)(3). C) Common stock issued by a public utility company whose rates are subject to state regulation. D) Variable annuities issued by an insurance company authorized to do business in this state.

D (57-Ex8)

James Jones, quarterback for a National Football League franchise team, deliberately misstated material information in the private sale of securities he owned. Jones claims he is not subject to the antifraud provisions of the Uniform Securities Act because he is not a registered agent and, secondly, the securities involved are exempt from registration requirements of the act. Which of the following statements is TRUE? A) As a professional athlete, Jones is not in the securities business and is therefore not subject to the antifraud provisions of the act. B) Jones's failure to accurately state material facts does not constitute fraud because the securities he sold were exempt from registration. C) The antifraud provisions of the USA do not apply to Jones because he is not suitably trained nor does he have a securities license. D) The antifraud provisions of the USA apply to any person who acts fraudulently in connection with the offer, sale, or purchase of a security.

D (65-Ex12)

Under the Uniform Securities Act, all of the following transactions are exempt EXCEPT a sale of: A) unregistered non-exempt securities in an unsolicited transaction. B) nonexempt securities to a broker/dealer. C) securities to a bank. D) securities to a private investor with a net worth of more than $5 million.

D (The USA does not offer a transaction exemption for sales of securities to high net worth individuals) (12-Ex9)

NASAA has a Statement of Policy on Dishonest or Unethical Business Practices by Broker/Dealers and Agents in Connection with Investment Company Shares. One of the things the Policy does is restrict statements that may be made when referring to a mutual fund as "no-load". Under the Policy, one could claim or imply that a mutual fund is no-load as long as the fund did not have a: I. contingent deferred sales load. II. 12b-1 fee in excess of .25% of average net fund assets per year. III. service fee in excess of .25% of average net fund assets per year. IV. front-end load in excess of .25% of the purchase price.

I, II, III (So, what is wrong with choice IV? Any front-end load, even one LESS than .25%, will lead to a prohibition against using the term no-load.) (63-Ex12)

Under the Uniform Securities Act, which of the following are cause for disciplinary review action by the state securities Administrator? I. Joe files an application for registration as an investment adviser and omits the fact that he was convicted of fraud 12 years ago. II. Tom, a registered investment adviser, fails to disclose that he recently filed for bankruptcy protection. III. The ABC Advisory Group, a registered investment adviser, employs several investment adviser representatives as independent contractors. IV. Ed is suspended from conducting business in the securities industry for a period of 6 months by FINRA (NASD).

I, II, V (Even though the Administrator's power to deny a registration is limited to convictions within the past 10 years, any conviction of a felony or securities-related misdemeanor must be disclosed. ) (15-Ex9)

Which of the following is a prohibited business practice? I. Executing a trade for a client on the orders of a client's attorney without third-party trading authority. II. Executing a purchase order at market when the price of the security was falling. III. Accepting a loan of securities from a customer.

I, III (51-Ex9)

A client is interested in purchasing an unlisted, non-Nasdaq equity security. The compensation to the broker/dealer must be disclosed: I. at the time of the solicitation. II. at the time of trade execution. III. in the prospectus. IV. on the trade confirmation.

I, IV (Commissions are always disclosed on the trade confirmation. In this specific case, NASAA wants you to understand that if the stock is not on an exchange (unlisted) and not on Nasdaq, it is one that will probably carry a higher than usual commission. In those cases, disclosure must be made at the time the trade is being solicited.) (30-Ex12)

A customer with liquid net worth of $25,000 tells an agent that she has $1,000 to invest. Explaining how diversification can reduce risk, the agent recommends that the customer purchase 8 different over-the-counter stocks, each trading at approximately $1 per share. With regard to the above situation: I. the recommendation is suitable for the customer because the agent recommends a diversified stock portfolio. II. high-risk penny stocks are not suitable recommendations for this low net worth customer. III. the agent may be exhibiting a pattern of excessive commissions (churning) in his customer's account. IV. once the customer agrees to the agent's recommendation, it is no longer considered an unsolicited transaction.

II (34-ex8)

The Uniform Securities Act defined many terms. Among them is the term sale. Which of the following would be included in the definition of sale? I. An offer of common stock in a new issue properly registered or exempt from registration in the state. II. A gift of assessable stock. III. An investor exercising preemptive rights previously received directly from the issuer. IV. An investor elects to forgo a cash dividend and receive the equivalent in stock instead.

II, III (48-Ex13)

Under the Uniform Securities Act, which of the following are prohibited actions of an investment adviser? I. Agency cross transactions. II. Selling securities as a principal to an advisory client without receiving consent of the client prior to the settlement date. III. Charging a performance fee to an elderly client whose net worth is only $2 million, with $150,000 of that under the adviser's management. IV. The owner of a majority of the stock of the advisory firm pledges that stock to a bank as collateral for a loan. No notice is sent to clients as this is an operating decision, not one dealing with investment advice.

II, IV (39-Ex9)

An Administrator may initiate a suspension or revocation proceeding against a broker/dealer registered in his state: I. up to 2 years after a broker/dealer voluntarily withdraws its registration. II. when an agent of the broker/dealer is convicted of a felony violation of the Securities Exchange Act of 1934. III. upon discovery that the broker/dealer's license had been suspended in another state. IV. upon discovery of new facts unknown to the Administrator at the time of the broker/dealer's initial registration.

III, IV (23-Ex13)

An Administrator may initiate a suspension or revocation proceeding against a broker/dealer registered in his state: I. up to 2 years after a broker/dealer voluntarily withdraws its registration. II. when an agent of the broker/dealer is convicted of a felony violation of the Securities Exchange Act of 1934. III. upon discovery that the broker/dealer's license had been suspended in another state. IV. upon discovery of new facts unknown to the Administrator at the time of the broker/dealer's initial registration.

III, IV (6-ex8)

Which of the following persons is included in the term "agent" under the Uniform Securities Act? I. A person who represents an exempt issuer and sells the issuer's shares to public investors. II. A person who represents an issuer in an exempt transaction. III. A broker/dealer who sells registered securities to the general public. IV. An individual employed by a broker/dealer who sells NYSE-listed securities to institutional clients.

IV (An agent under the Uniform Securities Act is a person (an individual) who sells securities to the general public. The term "agent" is not applicable to a person who represents an issuer in exempt transaction or in the sale of an exempt security. The term "agent" specifically excludes broker/dealers.) (50-Ex8)