Series 65 unit 4
Under the Uniform Securities Act, a nonissuer transaction is A) the purchase and sale of shares of common stock on the CHX B) an initial public offering of common or preferred stock C) the issuance of mutual fund shares D) a Regulation D private placement sale of limited partnership interests
A In a nonissuer transaction, the proceeds do not flow to the issuer; rather, the proceeds are credited to selling shareholders. A secondary market trade, such as a transaction executed on the floor of an exchange, is a nonissuer transaction. An IPO, the purchase of mutual fund shares, and the purchase of limited partnership interests all benefit the issuer and are called issuer transactions.
Section 402 of the Uniform Securities Act contains a listing of those securities that are granted an exemption from the registration and advertising filing requirements of the Act. Excluded from that listing would be A) corporate debentures B) bonds issued by the District of Columbia C) securities issued by a credit union authorized to do business in the state D) bonds issued by a Canadian province
A
Which of the following would be considered an issuer transaction as defined in the Uniform Securities Act? A) GEMCO, traded on the Nasdaq Stock Market, sells 5,000 shares of its stock to LMN Securities Co., a registered market maker in GEMCO stock. The stock was donated to GEMCO by a former officer of the firm. B) In its capacity as a market maker, LMN Securities Co. sells 200 shares of GEMCO common stock to the corporate treasurer of GEMCO, buying for the company's investment account. C) Barb, the largest shareholder in XYZ Corporation, purchases an additional 50,000 shares on the NYSE. D) Ken, the largest shareholder in ABC Corporation, sells 100,000 shares in a registered secondary transaction.
A
Which of the following would NOT be an issuer? A) A corporation selling certificates of interest in a mining lease B) An investment company C) A governmental agency borrowing money for short-term needs D) A partnership selling partnership interests
A Although the corporation issuing its own stocks and/or bonds would be an issuer, under the Uniform Securities Act, selling certificates of interest in mining leases or similar items does not make one an issuer. Even though the choice does not indicate how the governmental agency is borrowing, we can assume they are issuing a short-term note.
When describing exempt transactions under the USA, which of the following are fiduciaries? Executor of an estate Administrator in intestacy Custodian for a minor in an UTMA account An agent with authority over time and price execution A) I and III B) I and II C) III and IV D) II and IV
B
Under which of the following circumstances will a private placement fail to qualify for exemption from registration under the USA? A) The offer is directed to only 5 individuals during any 12-month period. B) The seller reasonably believes that individual purchasers are buying for investment purposes rather than immediate resale. C) A modest commission is paid to the agents who sell the offering to noninstitutional clients. D) A bank holding company purchases the offering for trading purposes rather than investment purposes.
C
Securities exempt under the Uniform Securities Act are exempt from registration requirements antifraud provisions of state securities laws sales and advertising literature filing A) II and III B) I, II, and III C) I and II D) I and III
D
The Uniform Securities Act provides an exemption from registration for certain securities and for certain transactions. However, the Administrator is not empowered to deny an exemption from state registration to U.S. government securities private placement transactions a transaction with an insurance company municipal bonds issued by another state A) II and IV B) II and III C) I and III D) I and IV
D
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
The U.S. Supreme Court case resulting in the decision than an investment contract is a security is the A) Muller case B) Steiner case C) Howey case D) Golub case
C
Which of the following statements made by an investment adviser would violate the anti-fraud provisions of the Uniform Securities Act? A) "We require any associated person determining general investment advice to be a CFA." B) "We believe that fundamental analysis is the best way to select stocks for our clients." C) "Our fees are nonnegotiable." (when Form ADV Part 2A clearly indicates otherwise) D) "We have over $40 billion in assets under management representing both institutional and retail clients."
C
Each of the following persons is able to issue securities EXCEPT A) a partnership B) an individual C) a credit union D) a corporation
b
Which of the following statements concerning transactions exempt from registration under the Uniform Securities Act is TRUE? A) An unregistered, nonexempt security may be lawfully sold in a nonexempt transaction. B) The antifraud provisions of the Uniform Securities Act apply to exempt transactions. C) The Administrator may require that a security be registered and a prospectus delivered in an exempt transaction. D) A security sold under an exempt transaction must be registered.
b
All of the following must be specified in the state registration statement of the security EXCEPT A) the total amount of the security that will be offered in each state B) the total amount of security that will be offered in this state C) a stop order from any other state that affects the offering of the security within that state D) all other states where the security is currently registered or will be registered
A
Which of the following is an issuer transaction? A) John's father, a founder of XYZ corporation, purchased shares of XYZ directly from the corporation subsequent to its founding without paying a commission. B) John sold the securities he had inherited from his father to his neighbor, Peter, at the market price without charging a commission. C) John inherited securities of the XYZ Corporation from his father who, as a founder to the company, received the shares directly from the company as a result of stock options. D) John purchased shares in XYZ Corporation in a transaction made in the over-the-counter market.
A
Which of the following statements regarding a red herring is NOT true? A) An agent may accept funds to be placed in escrow until the effective date if the request to do so is made by a potential purchaser. B) The final offering price does not appear in a red herring. C) Additional information may be added to a red herring at a later date. D) A red herring is used to accept indications of interest from investors.
A
A client of a broker-dealer calls his agent and submits an order to purchase 1,000 shares of a Chilean silver mining company. As the order ticket is being prepared, the agent notices that this is a nonexempt unregistered stock. The agent should A) wait for firm approval before processing the order B) continue to process the order because this is an exempt transaction C) inform the client that no orders for this stock may be accepted until it is properly registered in the state D) continue to process the order because this is an exempt security
B
A customer requests information on a new mutual fund and asks her agent to circle the important information in the prospectus and information he thinks will be of special interest to her. This is permitted A) if accompanied by an unmarked prospectus B) under no circumstances C) without restriction D) if approved by a principal
B
In order for a security to lawfully be sold or offered under the USA, it must meet at least one of the following requirements EXCEPT A) that it is sold in an exempt transaction B) that it is registered with the SEC C) that it is an exempt or federal covered security D) that it is properly registered with the Administrator
B
Which of the following describe indications of interest secured during the 20-day cooling-off period? Binding on the customer Nonbinding on the customer Binding on the broker-dealer Nonbinding on the broker-dealer A) II and III B) II and IV C) I and IV D) I and III
B Indications of interest are not binding on either party.
Under the USA, a private placement is considered an exempt transaction when directed to no more than 10 noninstitutional persons to no more than 15 noninstitutional persons in 9 consecutive months in 12 consecutive months A) I and III B) II and III C) I and IV D) II and IV
C
A broker-dealer is the lead underwriter in a new issue. During the period this new security issue is in registration, which of the following will usually be distributed? Subscription forms enabling clients to place a down payment on the issue A red herring prospectus The company's latest research report on that stock Indication of interest forms A) III and IV B) II and III C) I and II D) II and IV
D During the period a new securities issue is in registration, the underwriters usually prepare and distribute the red herring prospectus, along with forms to indicate interest in the issue. No firm orders or payment may be accepted prior to the date the issue is effective for sale
The USA defines all of the following as securities EXCEPT A) U.S. Treasury bills B) commodity futures C) debentures D) unlisted stock
B
It would not be a prohibited practice under the Uniform Securities Act for an agent to tell a client that A) the fact that she passed her licensing exams is ample proof of her qualifications B) registration of securities implies tacit approval of the Administrator C) registered nonexempt securities may properly be sold in the state D) my commissions are structured so I make money only if the client makes money
C
Under the Uniform Securities Act, securities issued by charitable organizations are exempt if A) the organization is a nonprofit company B) no commissions are paid on the distribution of shares C) the net earnings from the organization are paid to fewer than 10 private stockholders D) the organization is funded by government grants
A
Which of the following statements regarding unsolicited orders is TRUE? A) A client may purchase, at his own initiative, securities trading in the secondary market through an agent who otherwise is prohibited from soliciting the order. B) The state Administrator may not prohibit the solicitation of specific securities in the state. C) The state Administrator may not require the client to sign an acknowledgment that the order was unsolicited. D) Unsolicited orders are nonexempt transactions under the USA.
A Explanation If a client requests the purchase of a security that an agent is prohibited from soliciting, the agent can accept the order and mark the order unsolicited. This is the most common of the exempt transactions.
A manufacturing company is in the process of registering a securities issue with the SEC. In order to make the shares available for sale in this state, the method of registration that would most likely be used is A) notice filing B) coordination C) notification D) qualification
B
Charlotte is an agent of Gibraltar Securities. Her most active customer told Charlotte that he is thinking about buying 10,000 shares of a retailer's stock for which Gibraltar will be participating in the underwriting syndicate. The SEC release date for the stock is anticipated within 10 business days. What may Charlotte send to the client today? A) The final prospectus B) The preliminary prospectus C) An order request D) The preliminary prospectus and a reprint of a popular advertisement placed by the issuing corporation
B
An issuer would like to register its new offering in the state. Which of the following is not required in order for the registration to become effective? A) A listing of the amount of securities to be offered in this state B) A consent to service of process C) A rating in one of the 3 highest grades by a recognized rating agency D) A statement of the expected use of the proceeds of the offering
C
Which of the following would be considered a security under the provisions of the USA? A) An endowment contract issued by a life insurance company licensed to do business in the state B) A fixed annuity contract issued by a life insurance company not authorized to do business in the state C) A certificate of interest in a real estate limited partnership offering D) Gold bullion
c
If Perfect Pasta, Inc., a privately held company in Illinois that owns four restaurants, wants to issue shares to public investors who are residents of Illinois, the company A) must register by coordination B) must register by qualification C) may issue shares under the notice filing procedure available for covered securities D) is exempt from registration because there are fewer than 10 restaurants in the state
B
The USA considers certain transactions to be exempt from the requirements to register and the filing of advertising material. Included in that group are all of the following EXCEPT A) any transaction by an executor, administrator, sheriff, marshal, or guardian B) any offer or sale to a pension or profit-sharing trust as long as the plan has assets of no less than $750,000 C) an isolated nonissuer transaction effected through a broker-dealer D) any transaction executed by a bona fide pledgee without any purpose of evading the act
B
All of the following are exempt transactions EXCEPT A) an administrator of an estate selling securities to liquidate the estate's assets B) a pledgee liquidating securities that were put up as collateral for a loan that has now gone into default C) a client, on his own initiative, requesting a transaction in a security that is not registered in the state D) a Certified Financial Planner selling NYSE-listed securities to numerous high-net-worth individual clients
D A Certified Financial Planner selling NYSE-listed securities to numerous individual clients, regardless of their net worth, might be engaged in a nonexempt transaction, not an exempt transaction. This would not be true if the financial planner's clients were all financial institutions rather than individuals. Transactions by an administrator and an executor are exempt transactions, as are unsolicited nonissuer transactions. When securities that have been pledged as collateral for a loan, if that loan goes into default, the liquidation of that collateral is an exempt transaction.
The James Henry Company (JHC), an SEC-registered securities broker-dealer with offices in Chicago and Los Angeles, limits its clientele to banks and trust companies. JHC makes a sale of U.S. government securities to the Wall Street Bank located in New York City. Which of the following statements is (are) TRUE under the Uniform Securities Act? The security itself is exempt from registration. The transaction is exempt. The broker-dealer is not required to be registered in the state of New York. A) II only B) I and II C) I only D) I, II, and III
D The sale involves a U.S. government security, which is exempt from the registration requirements under the act. The transaction itself is also exempt because it involves a sale to a financial institution. Remember, in an exempt transaction, the security subject of the transaction need not be registered with the state in which the transaction takes place. In this example, the security was already exempt, but that does not diminish the fact that the transaction is exempt. The fact that the firm limits its clientele to financial institutions, such as banks, and that the broker-dealer has no office in New York means that, under the Uniform Securities Act, the firm is not considered a broker-dealer in that state. Therefore, the broker-dealer is not required to be registered in the state of New York.
The primary purpose of the securities registration requirements of the Uniform Securities Act is to ensure that proper disclosure is made available to potential investors. However, not all securities are required to register. Which of the following qualify for an exemption from registration under the act? A) Equipment trust certificates issued by railroads whose rates are not subject to regulation by a state or federal agency B) Common stock issued by life insurance companies authorized to conduct insurance sales in that state C) Bonds that are obligations of the People's Republic of North Korea D) Commercial paper with no more than 9 months to maturity that is in 1 of the 3 highest ratings by a nationally recognized rating agency and in a minimum denomination of $10,000
B
ABC Securities is a two-office broker-dealer in Idaho that intends to underwrite an initial public offering of 1 million shares of stock for Circular, Inc. If the issue will be offered exclusively to residents of State X, registration of this offering A) will most likely occur by notice filing B) will most likely occur by coordination C) will most likely occur by qualification D) is not required because of the de minimis test
C
An agent is registered in State X but not in State Y. The agent sells a resident of State X a new State Y municipal revenue bond. If the bond is not registered for sale in State X, which of the following statements is TRUE? A) The sale was illegal because the bond is not registered for sale in State X. B) The sale was legal because the sale took place in State X to a resident of that state. C) The sale was legal because the bond is not required to be registered for sale in State X. D) The sale was illegal because municipal revenue bonds are not exempt securities.
C
When a new issue of common stock is in registration, agents are permitted to A) receive indications of interest, along with a good-faith deposit B) furnish prospects with a final prospectus C) send a copy of the preliminary prospectus D) accept tentative orders
C
The Uniform Securities Act grants exemptions to the securities of a number of issuers. If you were the Administrator, which of the following securities would NOT be eligible for an exemption in your state? A) Equipment trust certificates issued by a regulated common carrier B) Common stock issued by the XYZ Trust Company, organized under the laws of a neighboring state, but not authorized to do business in this state C) Debt securities issued by the ABC Savings and Loan Association, organized under the laws of a neighboring state, but not authorized to do business in your state D) Bonds issued by the Province of Alberta
C Any issue from a state or Canadian province is always exempt. Equipment trust certificates issued by any regulated common carrier are always exempt. Banks, savings institutions, and trust company securities are also exempt as long as they are organized under the laws of the United States or any state. However, securities issued by a savings and loan or building and loan are only exempt if the issuer is authorized to do business in this state.
Which of the following are required to provide a consent to service of process to the Administrator in a state in which registration is sought? An agent employed out of state but who seeks registration in a state in which business is conducted A federal covered investment company not required to be registered in a state in which business is conducted but required to supply notice filing materials by the state Administrator A broker-dealer registered in 11 states that seeks registration in a 12th state An investment adviser with less than $25 million of assets under management who is not covered by federal legislation A) I and III B) I, II, and IV C) I, II, III, and IV D) II and IV
C Every legal or natural person seeking registration or making a notice filing must supply a consent to service of process with their registration applications. For example, a federal covered investment company, while covered under federal law, need not register with the state administrator but must submit notice filings materials that include a consent to service of process. Once a state-registered adviser is required to register in 15 or more states, registration with the SEC as a federal covered adviser becomes available, but not here at only 12. U4LO3
Under the Uniform Securities Act, which of the following statements is TRUE regarding the Administrator's power to deny or revoke an exemption? A) An order revoking an exemption may be issued without prior notice to the persons affected. B) In a proceeding to revoke an exemption, it is assumed that the exemption applies and the Administrator must prove that it does not apply. C) The Administrator may not revoke the exemption of securities issued by a nonprofit corporation. D) The revocation may apply to a period prior to the date on which the revocation order was issued.
A
Which of the following is NOT an accredited investor? A) An individual with a net worth, including the value of her primary residence, that is greater than $1 million. B) A registered open-end investment company with net assets of $600,000. C) Any organization not formed for the purpose of purchasing securities with a net worth in excess of $5 million. D) An individual whose income was greater than $200,000 in each of the 2 most recent years with a reasonable expectation of reaching that level again this year.
A
Which of the following financial instruments are considered securities under the USA? Collateral trust certificates Investment contracts, including interests in oil and gas drilling partnerships Options listed on the Chicago Board Options Exchange Foreign currency options contracts traded on the Philadelphia Stock Exchange A) I, II, III, and IV B) I and II C) II, III, and IV D) II and III
A Collateral trust certificates, investment contracts, options, and option contracts, regardless of the underlying asset, are identified as securities in the Uniform Securities Act and are subject to its provisions. Currencies are not securities, but options on currencies are. The key to questions like this is to remember those things that are not securities
Under the Uniform Securities Act, which of the following would NOT be considered an exempt transaction? A) An agent sells U.S. treasury bonds to an individual client B) The sale of an unregistered nonexempt security to an individual client at that client's request C) The sale of ABCD common stock, traded on the OTC Link, to an insurance company D) An executor liquidates the estate's portfolio
A Even though the bonds are an exempt security, the sale to an individual client is not an exempt transaction. Sales to institutions, or sales by fiduciaries, or unsolicited transactions are all exempt.
Securities issued by which of the following are exempt from the registration and disclosure requirements of the Uniform Securities Act (USA)? The United States or any territory A state or political subdivision of a state A common carrier (e.g., a railroad) regulated in respect to its rates and charges by the United States or a state Banks and savings institutions A) II and III B) I, II, III, and IV C) II and IV D) I and II
B
Under the Uniform Securities Act, which of the following is NOT an exempt transaction? A) A sale of securities by the executor of an estate B) The sale of U.S. government securities to an individual with a net worth in excess of $2 million by a registered government securities dealer C) A sale of stock through a rights offering to existing shareholders of the issuing corporation if no commission is paid D) The sale of a non-Nasdaq over-the-counter stock to a closed-end investment company
B
Under the Uniform Securities Act, a registration statement for a security must be signed by A) a majority of the issuer's board of directors only B) the issuer's chief executive officer and the underwriter C) the issuer's chief executive officer, chief financial officer, and a majority of the issuer's board of directors D) a majority of the issuer's board of directors and the underwriter
C
In which of the following situations did an agent commit fraud? A) On review of his files, an agent discovered he had sold a nonexempt, unregistered security to a retail client. B) A client claims an agent sold him unsuitable securities. C) An agent sold an excellent growth company to a client by omitting immaterial information during the discussion, so as not to distract the client from purchasing a suitable security. D) An agent knowingly sold a nonexempt, nonregistered security to a retail client who could well afford the risk involved.
D
Ways in which offerings under Rule 506(c) of Regulation D of the Securities Act of 1933 differ from those under Rule 506(b) include each of these EXCEPT A) all purchasers of the Rule 506(c) securities must be accredited investors as defined in Rule 501, whereas Rule 506(b) permits a limited number of sophisticated but not accredited investors B) the issuer must take "reasonable steps" to verify that all purchasers are accredited investors in a 506(c) offering, while no such obligation falls upon issuers in a 506(b) offering C) general solicitation is permitted under Rule 506(c) offerings; no advertising is permitted under Rule 506(b) D) securities issued under Rule 506(c) are federal covered, while those under Rule 506(b) are not
D
