TC Final 2

2. Renewal registration fees are NOT required of which of the following registered applicants? [A] A broker-dealer who is filing for a successor [B] Investment adviser representatives (IARs) [C] Agents of a broker-dealer [D] Agents of an issuer.

A. A broker/dealer filing for a successor would apply the unused portion of the existing registration to the new (successor) firm.

2. All of the following are cause for the revocation of an IA's registration under the USA except: [A] The IA loses a civil lawsuit filed by a client [B] The IA is found to be acting in violation of the 1940 Act [C] The IA is found to be violating the commodities laws of another state [D] The IA was convicted of a misdemeanor involving securities 4 years ago

A. A finding of a violation of any federal or state securities law is cause for revocation under the USA. So too is a conviction of any felony or securities misdemeanor in the last 10 years.

2. If an agent terminates his employment with one broker/dealer and has not yet been hired by another broker/dealer, the agent's registration: [A] is no longer effective [B] continues to be effective for 120 days [C] continues to be effective on an incentive basis [D] continues to be effective without restriction

A. An agent's registration is no longer effective when the agent is no longer associated with a broker/dealer.

1. A broker-dealer's state registrations under the Uniform Securities Act expires: [A] on December 31st unless it is renewed [B] on the anniversary date of the initial registration unless renewed [C] when clients no longer exist in that state [D] when it ceases to have an office in the state

A. By definition, the B/D's registration expires December 31st unless renewed.

1. A broker/dealer is registered in all 50 states but only has offices located in State A. The Administrator in State B has notified the BD that he is going to audit the BD's books and records. Does the Administrator in State B have authority to audit the books? [A] Yes, because the BD is registered in State B [B] Yes, because the Administrator has authority over all BDs [C] No, because the BD has no offices in the state [D] No, because the books and records are located in State A

A. If a BD is doing business in a state and is registered in the state, the Administrator of that state may examine the books and records at any time in or out of the state, even if the broker/dealer does not have an office in that state.

3. According to the Uniform Securities Act, all of the following are true of registration of securities by filing EXCEPT: [A] The total net worth of the issuer must be $2 million and the issuer also must have achieved net income from operations before allowances for a minimum of 3 of the last 4 preceding fiscal years. [B] The issuer must have a total net worth of $4 million or more. [C] At least one class of securities must be carried by the issuer and held by 500 people or more. [D] For a minimum of 36 months, the issuer must be actively engaged in business operations within the United States.

A. Section 302 of the Uniform Securities Act requires an issuer to be actively in business in the United States for at least 36 consecutive months immediately before the filing of the registration statement. The issuer must have a net worth of $4 million, securities held by 500 or more people, or net income from operations before allowances for at least 2 of the 3 preceding fiscal years, NOT 3 OF 4.

3. An administrator may require an issuer that registers a security by qualification to deliver a prospectus to a buyer [A] prior to the sale of the security [B] prior to the delivery date but after the sale [C] on the settlement date [D] no later than 5 days after settlement date

A. The administrator may require that an issuer deliver a prospectus with every offer, rather than the usual requirement of no later than the completion of the purchase.

3. Coordination is used to register securities with a state and an agent is talking to a prospective buyer about these securities. The Uniform Securities Act permits which of the following statements regarding this situation? [A] The agent may state that by accepting the registration by coordination, the Administrator stands behind the issue of securities. [B] The agent may state that no assessment or judgment has been made by the Administrator with regards to the viability of the company or security. [C] The agent may state that by accepting the registration by coordination, the Administrator believes that all aspects of the company and security are in order. [D] The agent may state that there were no false or inaccurate statements included in the registration, otherwise the Administrator would have denied registration.

B. Administrators, SROs, and government agencies such as the SEC will NEVER "pass on", "endorse", "stand by", or "guarantee" the viability of a company or security. It is also unacceptable for an agent to state that the Administrator has found that all statements and information contained in a registration statement is "true" or is "accurate" or for the agent to state that a registration statement would not have been approved if there were any inaccuracies.

4. What does it mean when a security is registered with a State under the Uniform Securities Act? [A] This means that the financial condition of the underlying company is good. [B] This means that the securities of the company can be legally sold in the State. [C] This means that information contained in the company's prospectus has been reviewed by the State and is acceptable. [D] This means that the securities are approved and placed on a recommendation list by the State.

B. Completing the registration process does not pass for qualification or recommendation by the State. Completion of registration simply means that the securities can be sold legally in that State. The SEC and the various States do not pass on, approve of, or recommend securities

2. An Administrator of a state may deny an application by a broker-dealer for registration, according to the Uniform Securities Act, if the broker-dealer applicant [A] has no experience in the securities industry. [B] has been suspended by the London Stock Exchange. [C] has been convicted of a misdemeanor involving a life insurance policy. [D] has been investigated by an Administrator in another state for securities law violations.

B. Each standing alone, answers A, C, and D are not sufficient grounds for Administrators to deny applications. However, being suspended by another stock exchange is sufficient grounds for an Administrator to deny registration.

2. Under the Uniform Securities Act, investment adviser's (IA's) applications for registration may be denied by a state Administrator for any of the following reasons EXCEPT: [A] The IA willingly violated several provisions of the Act. [B] The IA has been convicted of a misdemeanor, unrelated to securities, in the last 10 years. [C] The IA has been suspended or enjoined from working in the securities business by any court with jurisdiction.

B. Felons are not allowed to be IA's. Also, the Administrator may deny approval if a misdemeanor has been committed within the last 10 years that is related to the securities business. All of the other answers provide reasonable grounds for denial by the state Administrator.

1. According to the Uniform Securities Act, broker-dealers must renew their registration how often? [A] Every other year [B] Annually [C] Semi-annually [D] Quarterly

B. Registration must be renewed annually.

1. An IA must be registered in a state under the USA even if it has no place of business in the state if: [A] its only clients in the state are Investment Advisers. [B] its only clients in the state are considered accredited investors. [C] its only clients in the state are insurers. [D] during a 12 month period, it directs business communications to a maximum of 5 clients in the state.

B. Selling to an Accredited investor would require IA registration. The other choices are all expressly exempt from registration.

2. A state securities Administrator of state X, after doing some research has found that ABC Investment Adviser has become insolvent. ABC Investment Adviser's principal place of business is in state Y but they are also registered in state X. Based on this information what can the state Administrator of state X do? [A] The Administrator of State X may not take any action since the IA's principal office is in another state. [B] The Administrator of State X would be allowed to revoke the IA's registration based on the insolvency. [C] The Administrator can only notify the Administrator of State Y of the insolvency. [D] The Administrator would be required to contact the clients of ABC Investment Adviser and give them the details of the insolvency.

B. The Administrator of state X would be allowed to revoke the IA's registration based on the insolvency of the IA.

1. Under the Uniform Securities Act, a firm with its only office in State A that offers and sells securities exclusively to a registered investment company in State B: [A] Must register as a broker-dealer in State B. [B] Is exempt from registration as a broker-dealer in State B. [C] Is exempt from registration as a broker-dealer in State B because it only has one client in State B. [D] Is exempt from registration as a broker-dealer in State B because it does not have an office in State B.

B. Under the USA, it is unlawful for a firm to transact business in a state as a broker-dealer unless it is registered in the state or exempt from registration. The exemption applies to broker-dealers who sell exclusively to sophisticated institutional investors including registered investment companies.

4. Of the following securities, which is always exempt from registration under the USA? [A] A Canadian drilling company's common stock [B] The preferred stock of the parent company of an insurance company [C] The equipment trust certificates of a government-regulated railroad company [D] An interest in a limited partnership which partially invests in federal savings and loan association securities

C. Although securities issued by U.S. insurers are exempt from registration, securities issued by their holding companies are not exempt. The equipment trust certificates of government-regulated railroad companies are exempt.

1. An SEC-Registered IA has five clients in State X. Prior to entering into any advisory contracts, it would be necessary for the IA to make a notice filing when entering into such an agreement with [A] A state statute authorized investment council involved in the investment of state funds [B] A trust company using the IA to manage $100,000 of accounts [C] A testamentary trust account that is set up for minors [D] An investment company with assets of $500,000 and 150 investors

C. More than 5 clients in a state would normally require a notice filing by the investment adviser in the state, but financial institutions (e.g. a trust company), other investment advisers (e.g. the investment counsel), and investment companies are excluded when counting clients. A testamentary trust account set up for a minor would count as an additional client.

2. When filing an application to become an Investment Adviser, which of the following items is NOT required under the Uniform Securities Act? [A] The IA's proposed method of doing business [B] The qualifications of the IA's partners, officers, and directors [C] A bond which surpasses the requirements of the IA's principal office's requirements [D] A Consent to Service of Process

C. No bond may be required of any registrant whose net capital, or, in the case of an investment adviser whose minimum financial requirements, which may be defined by rule, exceeds the amounts required by the Administrator [Sec 202(f)].

1. If you are newly registered with a broker-dealer firm on May 5th. when do you have to renew your registration to adhere to Uniform Securities Act guidelines? [A] No later than the first day, January 1st, of the year following initial registration. [B] No later than May 4th of the year following initial registration. [C] No later than the last day, December 31st, of the year that you are initially registered. [D] No later than May 5th of the year following the year of initial registration.

C. The Uniform Securities Act specifies that registrations expire on December 31st of each year regardless of the date of initial registration. In order to renew registration, the registrant must submit their renewal on or before December 31st, prior to the start of the next year.

3. A company is going to be performing an initial offering. The offering will be limited to one state. The company has no intention of registering at the federal level. How would this offering typically be registered according the Uniform Securities Act? [A] This company should go through the coordination process in order to register. [B] This company should perform a notice filing with the state in which the offering is taking place. [C] This company should go through the qualification process in order to register. [D] This company should file with the state in which the offering is taking place.

C. This company would register by following the qualification process. In instances where a company is registering in one state and will not be registering at the federal level, the qualification process is the appropriate form of registration. Each of the other forms of registration hinges upon federal registration, either simultaneously (coordination) or prior (filing or notice filing).

1. Under the Uniform Securities Act when a registered Agent of a Broker-Dealer moves their personal residence when does that person's registration application have to be updated? [A] The Agent's registration application would not have to be updated if the address of the firm that they are registered with has not changed. The Agent simply has to notify their broker-dealer. [B] The Agent's registration application would have to be updated within 10 business days of the change in address. [C] The Agent's registration application would have to be updated promptly. [D] The Agent's registration application would have to be updated with the next annual renewal date of the Agent's registration.

C. Under the Uniform Securities Act, an Agent's application would have to amended "promptly" when the Agent has change in their home address.

3. When an agent of a broker/dealer sells securities the USA states: [A] that the security must be listed on a national securities exchange [B] that the agent must be registered with the SEC [C] that the security must be an exempt, federally-covered, or registered. [D] that the security must be listed on NASDAQ

C. When an agent of a broker/dealer sells securities the securities must be registered, exempt, or is a federal-covered security.

2. An agent of a broker-dealer has NOT "willfully" violated a provision of the Uniform Securities Act in which of the following situations? [A] The agent recommends unsuitable investments to clients regularly. [B] The agent trades excessively in a client's discretionary account both in size and frequency. [C] The agent buys a security for several clients without the proper authority or the client's knowledge and approval. [D] The agent's assistant buys a security for the client's account without notifying the agent.

D. "Willfully" means that the agent would have had to have known of the violation. Though an agent is expected to "know" their client's account, an agent cannot be held responsible for a violation of which they have no knowledge.

3. A non-issuer transaction, according to the Uniform Securities Act, is best described by which of the following? [A] Nobody other than the issuer has purchased the security. [B] Anyone other than the issuer has purchased the security. [C] A private offering is made by a corporation and the offering is exempt. [D] Any sale in which the issuer does not directly or indirectly benefit from the transaction.

D. A non-issuer transaction would include a shareholder selling shares that they own to another investor. Therefore there would not be any benefit to the issuer.

1. You are an investment adviser representative (IAR) at a state-registered investment adviser. Under the Uniform Securities Act, you must be registered if you do NOT currently have a place of business in the state, and if your clientele includes which of the following? [A] The business of another investment adviser (IA) [B] The business of a mutual fund [C] The business of an employee benefit plan [D] The business of an accredited investor.

D. Investment companies, employee benefit plans, and other investment advisors are included in the exemptions from the definition of an Investment Adviser and therefore would not be required to register.

2. Uniform Securities Act regulations permit the Administrator of a state to cancel or revoke the registration of an Investment Adviser for what reason(s)? I.The Administrator finds that the IA has gone out of business. II.There has been a ruling that the IA is mentally incompetent of fulfilling IA tasks. III.The Administrator performs a thorough search and fails to locate the IA.

D. The Uniform Securities Act permits an Administrator to cancel or revoke an IA's registration for all of the reasons listed.

4. Which of the following are exempt from the sections of the Uniform Securities Act which require registration and filing of advertising materials? I.Common and preferred stock issued by a corporation and sold over-the-counter II.Debt securities issued by the United States as well as those issued by the Canadian Government III.Bonds and debentures issued by a corporation and sold over-the-counter IV.Securities such as common stock that are listed on a stock exchange such as the NYSE

D. The Uniform Securities Act provides exemptions for US Government Securities, securities issued or guaranteed by the country of Canada, and securities that are listed on national exchanges such as the New York Stock Exchange, American Stock Exchange, and the Midwest Stock Exchange. Corporate equity and debt securities that are sold over-the-counter (not listed) are not necessarily exempt from the registration and filing of advertising, unless these securities qualify for some other exemption. In this case, these corporate securities are not exempt.

2. State Administrators may, according to the Uniform Securities Act, require the application for registration as an investment adviser to include which of the following? [A] A list of the past 5 years of records of currently employed and previously employed investment adviser representatives (IARs). [B] A record of client securities and the location and manner in which they are held or will be held. [C] The compliance procedures of the IA [D] The financial condition and history of the IA

D. When filing an application for registration, an Investment Advisor must include their financial condition and history. Once the IA is registered, the IA would have to comply with other requirements.

1. Whenever an agent starts or ends a business relationship with an issuer, to comply with Uniform Securities Act regulations he or she must: [A] appear before the Administrator to seek approval. [B] wait until consent is given to do so by the Administrator. [C] meet minimum financial requirements and post surety bonds. [D] provide the Administrator with prompt notification.

D. Whenever an agent begins or terminates a relationship with an issuer or broker/dealer, the Uniform Securities Act requires that the agent as well as the issuer or broker/dealer firm, promptly notify the Administrator. Notification should be filed by each entity (broker/dealer firm, issuer, and agent).

1. An investment advisory firm's offices are located in State X. The IA exclusively services financial institutions such as insurance companies. This IA firm must [A] be fully registered with the SEC under the Investment Advisors Act of 1940 and coordinate registration with State X. [B] be fully registered with the SEC under the Investment Advisors Act of 1940 and perform a notice filing registration with State X. [C] be fully registered with the SEC under the Investment Advisors Act of 1940 only. [D] be fully registered with State X but need not register with the SEC under the Investment Advisors Act of 1940.

D. With the information provided, the investment advisory firm must register with the state where it has its principal place of business, State X, and does not need to register at the federal level with the SEC.

1. Which of the following investment advisers may, by law, transact business in a state according to the Uniform Securities Act? I.A registered adviser II.An investment adviser, who is not registered in a State or with the SEC, whose advice relates solely to exempt securities III.An adviser registered in State X who has no place of business in State Y and directs business communications to 5 or fewer clients in State Y over the past 12 months.

I and III only Under the Uniform Securities Act, an investment advisor must register when giving advice on any security, exempt or not. In the Investment Advisors Act of 1940, an exemption exists for federal covered advisors who give advice on government securities only, but this question is specific to the Uniform Securities Act. The five client exemption applies here, so remember that an IA with 5 or fewer clients (also can be stated "less than 6") could transact business in a state without registering in that state.

4. Of the securities listed below, which would be exempt from the registration requirements of the Uniform Securities Act? I.Securities issued by a railroad common carrier company. II.Securities issued by a federal credit union established for teachers. III.Securities issued by a trust company. IV.Securities issued by a corporation.

I, II and III only Of the choices listed, the only option which would not be exempt under the Uniform Securities Act would be securities issued by a corporation. All other items fall under an exemption of the Uniform Securities Act

4. Under the USA, the sale of interests in limited partnerships to a bank is exempt from: I.the anti-fraud provisions II.The registration requirement III.The filing of advertisements requirement

I, II, III No security transaction is exempt from the anti-fraud provisions of the USA. The sale of a security to a bank is an "exempt transaction" and is therefore exempt from registration and filing of advertising.

2. When an Administrator of a state reviews the effectiveness of the registration statement for a security to be offered in their state, such registration may be denied based on which of the following? I.The issuer intends to offer services which are illegal in the state II.Compensation to the underwriters is disproportionally high based on the offering III.The company is a start-up company and has no history of previous operations IV.The registration documents have been found to include inaccurate data

I, II, and IV only The Uniform Securities Act specifically lists I, II, and IV as reasons for the Administrator to deny the effectiveness of a registration statement/application. Choice III may be a contributing factor in the Administrator's decision, but cannot be the basis for denial of registration.

1. Chris and Mark are childhood friends who were born and raised in California. Chris is registered as an agent only in California but he works at a broker/dealer firm that is registered in all 50 states. Mark has had a brokerage account with Chris for 8 years. Several of Mark's family members decide to move to Arizona to pursue a new business venture, and Mark decides to go as well. If Mark wants to continue to have Chris as his agent, which of the following would be TRUE? I.Chris can continue to handle the account, because he and Mark are friends and the business relationship has existed for more than 5 years. II.Chris would have to register in the state of Arizona if he wishes to continue handling Mark's account. III.Chris can get around registering in Arizona if Mark puts down a California mailing address, even though Mark has now moved to Arizona. IV.Chris would not have to register in the state of Arizona, because he currently handles 5 or fewer clients in that state and qualifies for an exemption.

II only If Chris and Mark want to continue the agent/client relationship, it will be necessary for Chris to register in the state of Arizona. Their friendship and the length of time the account have been open would not exempt Chris from registration procedures. Having Mark put down a false mailing address is an unethical practice, and Chris would be required to register in Arizona regardless, because orders would be originating from that state. Remember that the 5-client exemption applies only to investment advisory firms. Chris would not be exempt from registration as an agent because he only has one client in Arizona.

4. Under the USA, which of the following are considered exempt securities? I.ADRs II.Bonds issued by a corporation III.Bonds issued by a bank IV.Securities issued by a federal credit union

III and IV only Securities issued by federal or state banks and credit unions are explicitly exempt. Corporate bonds and ADRs are not exempt.