Series 65 Unit 12
Under the Uniform Securities Act, which of these are true regarding the sale of an unregistered nonexempt security? I. It is permissible if the order was unsolicited. II. It is permissible if the customer agrees not to pursue legal action. III. It is permissible if the security appreciates in value. IV. It may subject the agent to civil liability. A) I and IV B) II and IV C) I and III D) II and III
A) I and IV If a security or the transaction in which a security is sold is not exempt, the security must be registered with the state. The sale of a security in violation of the act, such as the sale of an unregistered nonexempt security, exposes the broker-dealer and agent to civil liability. If a nonexempt security is sold through an exempt transaction, such as an unsolicited transaction, the security effectively becomes exempt for purposes of registration and, therefore, legal. LO 12.e
An agent mistakenly sold an unregistered, nonexempt security to a customer. Which of the following actions should the broker-dealer take? I. Offer to buy the security back from the customer. II. Ask the customer to sign a customer agreement. III. Register the stock by notification. IV. Offer to pay interest at an annual rate determined by the Administrator, less income paid, from the date the security was purchased. A) I and IV B) I and III C) I, II, III, and IV D) II and III
A) I and IV In the case of an agent who mistakenly sells an unregistered, nonexempt security, the broker-dealer should offer to buy back the security from the customer and pay the customer interest on the amount invested in the security for the period from the original purchase to the resale back to the firm, minus any income or profit realized by the client on the security. This is known as the right of rescission. LO 12.d
Under the Uniform Securities Act, the Administrator is empowered to do all of the following except A) file a civil suit against a broker-dealer who has sold an unregistered nonexempt security to a resident of this state. B) issue a cease and desist order. C) publish information relating to violations committed in the state. D) require an agent to submit a written statement relating to an investigation.
A) file a civil suit against a broker-dealer who has sold an unregistered nonexempt security to a resident of this state. A civil suit may only be filed by an aggrieved purchaser. The Administrator could take administrative action against the broker-dealer (issuing a cease and desist order, for example) but has no civil powers. LO 12.b
An agent is registered with a broker-dealer whose principal office is located in State X but who also does business in State Y. However, the agent is only licensed in State Y and confines her business to residents of that state. The Administrator of State X has what kind of authority over this agent? A) Can check the records of the agent in State Y only with proper prior notification B) Cannot check the records of the agent in State Y because it is not State X's jurisdiction C) Can check the records of the agent in State Y with no prior notification D) Can only take action against this agent when she is physically present in State X
B) Cannot check the records of the agent in State Y because it is not State X's jurisdiction Even though the broker-dealer is registered in State X, the agent in question is not; she is only registered in State Y. Therefore, the Administrator has no jurisdiction over the activities of this agent in a state other than his own. LO 12.a
An unintentional omission of material facts when offering or selling a security may result in which of these? I. Civil liabilities II. Criminal liabilities III. Criminal penalties A) II and III B) I only C) I, II, and III D) II only
B) I only An unintentional omission of material facts when offering or selling a security would result in civil, but not criminal, liabilities under the USA. If the omission of material facts is willful, it can result in criminal liabilities and penalties. LO 12.e
According to the Uniform Securities Act, an offer or a sale does not exist if it is which of these? I. A reclassification of the issuer's securities II. A bona fide pledge or loan III. An act incident to a judicially approved reorganization in which a security is issued in exchange for one or more outstanding shares IV. A stock dividend of stock other than the issuer's for which nothing of value was given A) II and IV B) I, II, III, and IV C) I and II D) II and III
B) I, II, III, and IV The Uniform Securities Act specifically excludes these four choices from the definitions of offer and sale. LO 12.a
The terms offer, offer to sell, sale, and sell include which of the following? A) Any bona fide pledge or loan B) Preemptive rights C) A stock dividend for which the stockholders give nothing of value D) An act incidental to a class vote by stockholders pursuant to the applicable corporate statute on a merger
B) Preemptive rights The preemptive right frequently given to common stockholders allowing them to purchase shares of a forthcoming issue is considered to be an offer of that upcoming issue. The terms sale or sell include every contract of sale, contract to sell, or any disposition of a security for value. A gift of a security is not considered a sale. The terms offer and offer to sell represent any effort to dispose of a security for value. This does not include bona fide loans, stock dividends, or dispositions pursuant to corporate statutes. LO 12.a
The Administrator may deny a person's registration as an investment adviser representative if the person meets which of the following criteria? I. Has a recent securities-related criminal record II. Has recently been convicted of a felony not related to the securities industry III. Has lost a civil lawsuit within the last year IV. Was convicted of any misdemeanor within the last year that did not involve securities or money A) III and IV B) II and III C) I and II D) I and IV
C) I and II The Administrator may deny a license to individuals who have been convicted of any felony or a securities- or money-related misdemeanor within the last 10 years. Civil lawsuits will rarely have an effect upon securities registration. LO 12.c
Under the USA, which of the following are grounds for suspension, denial, or revocation of an issuer's registration statement? I. Information in the registration statement is incomplete II. Unreasonable compensation to the underwriters III. Failure to pay filing fees IV. The security is subject to an administrative stop order in a federal court. A) I and II B) II and IV C) I, II, III, and IV D) I and III
C) I, II, III, and IV Incomplete information on the registration statement, unreasonable underwriting compensation, failure to pay filing fees, and a security subject to an administrative stop order in federal court are all grounds for suspension, denial, or revocation of an issuer's registration statement. LO 12.c
Which of the following constitutes a sale of stock? I. Solicitation of a tender offer by a corporation II. Gift of assessable stock III. Purchase of shares through the exercise of a warrant IV. Exchange of shares in a corporate reorganization, such as a merger A) I and II B) III and IV C) II and III D) I, II, and IV
C) II and III A gift of assessable stock constitutes a sale under the USA because the corporation that issues assessable stock can bill shareholders for cash representing the par value shortfall at a future date. Upon the exercise of a warrant, the holder of the warrant purchases stock and the issuing corporation sells the stock. Under the Uniform Securities Act, the solicitation of tender offers by corporations and exchange of shares in corporate reorganizations are not sales. LO 12.a
Under the Uniform Securities Act, a state securities Administrator who believes that a registered investment adviser representative is about to violate a provision of the act would initially A) issue an order that permanently bars the investment adviser representative from conducting business in the state. B) withdraw the investment adviser representative's license. C) issue a cease and desist order. D) seek a court injunction to prevent the pending violation.
C) issue a cease and desist order. The Administrator would initiate action by issuing a cease and desist order. If the registered investment adviser representative continues to pursue activities that result in a violation of the USA, the Administrator may seek a court injunction to prevent the abuse. LO 12.b
The statute of limitations for criminal offenses under the USA is A) 10 years. B) 3 years. C) 2 years. D) 5 years.
D) 5 years. Remember the sequence 5-5-3: 5-year statute of limitations, $5,000 maximum fine, and imprisonment for up to 3 years. LO 12.e
If an agent, broker-dealer, investment adviser, or investment adviser representative is found to be in violation of the provisions of the Uniform Securities Act, penalties could include which of these? I. Administrative action II. Fines III. Imprisonment A) II and III B) I and II C) I and III D) I, II, and III
D) I, II, and III Those securities professionals found guilty of violating the USA could face various sanctions from the Administrator, including a fine and/or jail sentence if mandated by the courts. LO 12.e
Under the USA, an Administrator may A) require that registrants post a surety bond prior to a hearing, to ensure payment of money fines. B) revoke the registration of an agent and thereby place into suspense the registration of the agent's broker-dealer. C) require broker-dealers to retain books and records for the life of the firm plus two years. D) revoke the registration of a broker-dealer and thereby place into suspense the registration of all the agents employed at the broker-dealer.
D) revoke the registration of a broker-dealer and thereby place into suspense the registration of all the agents employed at the broker-dealer. Under the USA, if the sentence fits the crime, an Administrator may revoke the registration of a broker-dealer. When a broker-dealer's registration is revoked, all its agents' registrations are placed into a suspended status because agents must be associated with a registered broker-dealer for their registration to be valid. While revocation of the broker-dealer's registration affects each of the agents, the reverse is not true when an agent's registration is revoked. The USA does not provide for posting of bonds on the part of registrants subject to an Administrator's investigation. LO 12.c
Aaron Jones, a client of XYZ Financial Services, has suspected the possible churning of his account over the past several years but has taken no action. He consults his attorney, who informs him that any civil claim for recovery of damages under the Uniform Securities Act must be started within A) one year of occurrence. B) two years of occurrence or three years of discovery, whichever occurs later. C) two years of occurrence. D) three years of occurrence or two years of discovery, whichever occurs first.
D) three years of occurrence or two years of discovery, whichever occurs first. Under the USA, a civil claim for recovery of damages must commence within the sooner of three years of occurrence of the offense or two years of its discovery. LO 12.e
