Simulated Exam 3

An agent based in Alabama directs a solicitation to a customer who lives in Connecticut while the customer is temporarily in Indiana. The customer does not accept the offer until he arrives back in Connecticut. According to the USA, the Administrators of which of the following states have jurisdiction?

Alabama, Connecticut, and Indiana (The Administrator from any state from which an offer is made, directed, or accepted has jurisdiction over the offer.)

Under the terms of the USA, which of the following is an investment adviser for purposes of state regulatory jurisdiction?

An investment subsidiary of a bank holding company located in the state that manages $70 million in assets (A bank holding company's investment subsidiary that manages less than $100 million in assets is an investment adviser subject to the USA.)

Under the USA, which of the following statements are TRUE about the authority of an Administrator? I. A cease and desist order may be issued prior to a hearing. II. A cease and desist order may be issued after a hearing. III. A cease and desist order is valid for a maximum of 30 days. IV. A cease and desist order may be used to suspend the offering of a security.

I and II (In issuing a cease and desist order, the Administrator may provide prior notice and hearing or may issue the order without prior notice or hearing (summarily). There is no time period associated with the order.)

Under the USA, requirements for registration may include which of the following? I. An announcement of the application for registration in one or more newspapers in the state II. Minimum capital requirements for broker-dealers who do not have custody of client securities or funds III. A surety bond for agents who have custody of client securities or funds

I and II (The Administrator may also establish minimum capital requirements for broker-dealers, whether or not they maintain custody. However, the Administrator may require a bond only of persons who have custody or discretion. Agents may never have custody, only broker-dealers and investment advisers are permitted to do so.)

Which of the following are NOT agents as defined in the USA? I. A broker-dealer acting on behalf of a properly registered issuer II. An individual representing the U.S. government in the sale of its securities III. An individual who, acting on behalf of a broker-dealer, sells exempt securities or engages in an exempt transaction IV. An individual who represents an issuer selling a nonexempt security in a non exempt transaction

I and II (the exclusion from the definition of an agent only applies to those individuals who are selling on behalf of the issuer (never a broker-dealer) and only when the transaction is exempt or the issuer is one of a specified list of exempt issuers.)

As defined in the USA, an agent is a(n) I. individual who represents an issuer of nonexempt securities in nonexempt transactions II. registered broker-dealer that deals in registered securities III. individual who sells nonexempt securities as a representative of a registered broker-dealer IV. individual who has no place of business in the state and sells securities to an existing client who is not a resident of the state

I and III (Agents generally work for and represent a broker-dealer in conducting securities sales or transactions but are excluded from the definition of an agent if they have no place of business in the state and sell securities to an existing client who is not a resident of the state.)

Which of the following are characteristics of both an investment adviser representative and an agent? I. They are natural persons II. They are legal entities other than a natural person III. To be registered, they must pass an exam administered by the state and/or FINRA IV. To be registered, they need be subject only to an audit of their books and records

I and III (Registered investment adviser representatives and agents are always natural persons and must pass an exam to prove their minimal proficiency of knowledge and understanding of both the securities and investment advisory industries.)

The term "agent", as defined in the USA, would not include which of the following individuals?

One who represents an issuer in effecting exempt transactions

Which of the following statements is NOT true of investment advisers under the USA?

Only written advice concerning investments is covered by the act.

XYZ Securities is a broker-dealer based in Wisconsin with offices in no other state. In addition to its Wisconsin clients, XYZ has 30 retail customers living in Illinois. During the winter, if 10 existing customer vacation in Florida for up to 7 weeks at a time, XYZ Securities is a broker-dealer in

Wisconsin and Illinois (Under the USA, XYZ Securities is a broker-dealer in Wisconsin because it maintains an office there. XYZ Securities is also a broker-dealer in Illinois because with 30 Illinois retail (non-institutional) customers, registration is required even if there is no physical office in Illinois.)

As an incentive to encourage clients to invest in a particular stock recommended by the broker-dealer, clients are told that any time within 6 months after the purchase date, they may sell the stock back to the firm at original cost plus interest at the state's legal rate. This would be

a prohibited guarantee against loss

Western Securities, Inc. (WSI) is a broker-dealer that also offers portfolio management. One of WSI's portfolio managers notices an article on asset allocation that harmonizes with WSI's investment philosophy. If WSI should post a link to this article on its website, it would probably be considered

adoption (A firm will be responsible for the content of a linked third-party site if the firm "adopts" its content on any of the firm's sites. Adoption is defined as a firm's endorsement of the content of a third-party site. Not illegal, but the firm is responsible for the content of the linked information and must be sure that it complies with the firm's policies.)

A broker-dealer with no place of business in the state would not be required to register if their only clients were

banks and insurance companies

Under the USA, an agent is a(n)

individual representing a broker-dealer who sells federal covered securities

A customer asks an agent for a valuation of his securities portfolio. Because the agent does not want to cause the customer to panic and sell his shares at a loss, the agent inflates the value of the stock. Under the USA, this action is

not permitted because the agent must not deceive the customer by misstating a material fact

If an agent has secured a signed statement from a customer that waives the customer's right to sue for a transaction in violation of the USA, the agreement is

null and void (USA explicitly states that no provision of the act may be waived, whether the client consents to the waiver or not.)

One way in which an investment adviser acting in the capacity of an agent in a transaction with a client differs from a broker-dealer performing the same task is that the investment adviser

shall obtain client consent before completion of the transaction (In order to act as an agent (or principal) in a trade with an advisory client, there are 2 requirements: The client receives full written disclosure as to the capacity in which the adviser proposes to act, and consent of the client; both are required before the completion of the transaction.)

A new client is opening a margin account and notices the following wording in the documentation: "You are authorized to lend to yourself or others any securities held by you in my margin account and to carry all securities lent as general loans, and you shall have no obligation to retain under your possession and control a like amount of such securities". When the client asks you what this is about, you would respond that

this is the loan consent agreement (no broker-dealer shall lend securities that are held on margin for a customer and that are eligible to be pledged or loaned, unless the broker-dealer shall first have obtained a written authorization from such customer permitting the lending of such securities. Only one of the margin documents that is optional.)

A potential client is not very forthcoming with financial information, objectives and goals. In order to be able to make suitable recommendations to a client,

you would make reasonable inquiry about the client's financial situation, objectives and needs (if the client is not forthcoming with this information, all you can do is accept unsolicited orders.)