Series 66
Federal violations punishable by
$10k fine p/ offense & 5 YRs in prison
Violation per Investment Advisers Act of 1940 punishable by
$10k fine, 5 YRS jail
Max fine for criminal violations of USA
$5k
USA criminal violations punishable by
$5k fine p/ offense & 3 YRs in prison
Violations per USA punishable by
$5k fine, 3YRs jail
Excluded from IA Definition (Federal law is IA'40 and State law is USA in parenthesis
- Banks, Bank Holding companies - LATE; Lawyer, Accountant, Teachers, Engineers - BDs & their agents - Newspaper, magazines (BUT CANT GIVE ADVICE BASED ON SPECIFIC CLIENT SITUATIONS) - Anyone giving advice about govts - (Federal Covered Advisor)
Exempt securities (Uniform securities ones in parenthesis)
- US Govt, Agencies, Munis - Commercial paper & bankers acceptances w/ 9 month max mat (banker acc must be top 3 inv grade and sold in $50k units) - Insurance Co Issues - Bank issues - Common carries issues - non profit/ charitable organization issue - (public utility issues) - (securities of issuers listed on national stock exchange)
For an issuer to increase number of shares being issued
1) Amendment must be filed within 6 mo of the date of the scale 2) Both an additional filing fee and late registration fee must be paid
Administrator can require new investment adviser who files reg app in a state to
1) Announce opening of advisory firm in local newspaper 2) pass oral/written qualification exam 3) file with administrator any advertising or communication to be disseminated to public
Excluded from BD if
1) Any firm that has NO PLACE of business in State and does not have clients in State 2) Any firm that deals solely with issuers, BDs, financial institutions
Registration Application includes
1) Business History 2) Conviction record 3) Financial condition
USA subjects Agents and BD to
1) Civil liability: refunding customers money plus 6% interest 2) Criminal liability and penalties: serious violations such as jail and high penalties
Required during Initial Registration as Agent
1) Consent to Service of Process 2) Filing Fee 3) Registration Application NO NEED FOR GOVT ID
Sale
1) Contract of sale 2) Disposition of an interest for value 3) Gift of assessable securities
Registration for securities offerings include
1) Current BS & IS 2) Business description 3) Use of proceeds of offering 4) Offering term 5) Legal opinion 6) Accountants opinion
Offer to Sale
1) Offer of security 2) Offer of an interest in security 3) Solicitation of an offer to buy a security
Administrator has jurisdiction over an offer of securities of advisory services if an offer
1) Originates in admins state 2) directed into admins state 3) accepted in admins state
SEC Exempt transcation
1) Private Placements under Reg D 2) Intrastate offerings under R147 3) Rule 144
Agent can only be registered if
1) if they are affiliated with a BD that is registered 2) Cannot register on own 3) Must register in state they physically reside and direct securities
Statue of Limitations per USA
10 YRS in US. 5 YRS in Foreign jurisdiction
per NASAA rules for State Reg Advisers, transactions must be recorded in customer accounts no later than
10 business days following EOQ
Statue of Limitations for FILING CLAIMS
5 years under USA, and 3 years under Federal
Per NASAA, advisers must retain records for no less than
5 yrs & with first 2 years records kept in principal office of the adviser
If individual disagrees with fairly order of administrator they can make appeal within how much time
60 days
To be a diversified management company what % of assets is invested in securities
75%
If NW requirement is not met then
Adviser must notify State Admin by close of business day and file report of Advisers financial condition: trail balance of ledger accounts, statement of all client funds, securities, assets which aren't segregated, computation of aggregate amount, # of clients
Who must notify the administrator if an agent of a broker-dealer is terminated
Agent & Ex employer
De minimis exemption
Allows one to give investment advice without being registered as an investment adviser. Exemption available on both the Federal and State level. There is a Federal de mininis exemption and State de minims exemption
Broker-Dealer (BD)
Any1 effecting transaction for themselves or some1 else. Excluded, agents, issuers deposit taking institutions.
Consent to Service of Process
Appoints Administration as person allowed to accept "service of process" for registration in a lawsuit. So if anyone wants to sue, they sent it to the Administrator first who then forwards it to registrant. Administrator is authorized to receive suits on behalf of an agent or BD
Form BD
BD app for both Federal and State reg. U4 is the Federal Securities Industry App for individuals. U5 is the termination form. U10 used to take exams
State blue sky laws provide registration for all the following except
BD, Agents, IA, Issuers (X). Issuers not reg but the securities are.
Net working capital
CA - CL
Retention of Customer accounts for BDs under USA
Customer trade confirms for 3 years Customer account statements for 6 years
When B-D becomes effective in State, who is not required to separately register
Directors of B-D
Investment Adviser Registration Depository (IARD)
Electronic database for when registering electronically
Correspondance
Email & Instant Message.
Investment Companies are
Face amount certificate company, unit investment trust, and management company
Exempt from IA registration
Federal - Any adviser with its place of business in 1 state that only renders advice in that state - Advisers to insurance companies State - Person with no office in the state that deals exclusively with other investment advisers, BDs, investment companies, pension plans w/ at least $1M of assets or govt agencies - Persons with no office in state that renders advice to no more than 5 clients in 12 months - SEC Covered Advisers that manage $100MM or more of assets - Advisers to registered investment companies
Exempt transactions (Federal law is SEC '33 and State law is USA)
Federal (SEC '33) - Reg D; max 35 non acc investors - Rule 147 intrastate offering - Regulation A - offering of no more than $50M within 12 mo period State (USA) - private placements; max 10 investors where no commissions paid - Unsolicited transactions - Isolated non issuer transactions - usually no more than 5 transactions in a state in 1 yrxf
Criminal Violations
Federal Law (IA '40) - 5 YRS in Jail - $10k Fine - Action brought within 2 years of discovery of event; no action can be brought after 5 yrs elapse from date of the event State law (USA) - 3 YRS in Jail - $5k Fine - 5 YR S.O.L
Form ADV for Federal Law (IA 1940) vs Form ADV for State Law (Uniform Securities Act)
Federal law -Part 2A & 2B at or prior to entering into advisory contract - withdrawal within 60 days - custody $1,200 in 6mo State Law - Part 2A & 2B at least 48 hours prior to customer signing OR sign contract on Day 1 and have 5 days to cancel - withdrawal 30 days - custody $600 in 6mo
Registration by Coordination
Filing info given to SEC for Federal reg is filed with the State. Allows Federal and State registration to be done @ same time but is more rigorous. Cooling is 20 days with SEC and 10 days with USA
Surety Bond
Fixed ~$10k Amt posted w/ State as case with BDs, Agents & IA. Can be seized by state if investors defrauded by any of these persons.Can be used to pay any legal claims. Can be deposited with cash cash of securities. Administrator can waive surety head requirement if net capital or net worth exceeds stated dollar amount.
Registration by Filing
For issuers who have issued securities before 1) Issuer must have minimum earnings levels for the 2 of past 3 years 2) Copies of any offering materials must be included in the registration filing 3) Issuer must not have defaulted on any interest payments within past year
Markets timing must be disclosed in
Form ADV Part 2A
Sales Literature
Group email & Research report. If sent to 25+ ppl it's called communication
Application to register securities cannot be filed from
IA & Agents. Can only be filed by issuer, B-D, person on whose behalf offering is being made
Federal de minimis exemption per Investment Adviser Act of 1940
IA who gives advice to max 15 ppl within 12 months is exempt from registration with SEC
State de minimis exemption per SEC
IA who gives advice to max 5 ppl within 12 months is exempt from registration with State
Excluded from definition of IA per USA
IAR, depository institutions, BDs, professionals who give incidental advice, publishers or general circulation periodicals that don't give specific client advice and federal covered advisers
Which terms defined under USA
Investment Adviser, Investment Adviser Representative, Broker-Dealer
Excluded from definition of IA per Investment Advisers Act of 1940
LATE Lawyers, accountant, teachers, engineers IF THEY DON'T CHARGE FOR INVESTMENT ADVICE
Registration by Qualification
Most difficult. Used for companies IPO where there is no Federal SEC registration so State has no other info about issuer and issue must "qualify" to have securities register.
Per NASAA record keeping rules for IA, any advertisement, circular or other communication
Must be retained if sent to 2+ ppl (for 5yrs). Can recommend purchase/sale of specific security and if it does not state reasons for recommendation, memo must be retained indicating reasons for recommendation
Federal Covered Advisor
Must register with SEC if adviser has more than $100m. Exempt from Federal Register under Investment Company act of 1940 if advice is giving solely about US Govt Secs.
Initial Filing fees prorated (Y or N)
No
Is there a filing fee when IA buys out another IA firm?
No
Federal Covered Advisor Representative
No need to register with SEC. Must register with State.
Investment Adviser (IA)
PM. Manages portfolio for individual investors or companies charging a mgmt fee. Must be Registered with with SEC per Investment Adviser Act of 1940 and must be registered in each state they operate.
Life's of Partnership, LLC, Corporation
Partnerships - Limited. Corporation/LLCS - Unlimited
Per SEC Release IA-1092 INCLUDES definition of investment adviser to
Pension consultants, advisers to entertainers, advisers to athletes
Rescission
Person who sold securities in state in violation of state law can offer to rescind the sale to any purchaser. Seller offers to return all monies and customer has 30 days to accept. If not accepted, customer can no longer sue for recovery of monies. Cannot be used to offset criminal liability
Strong Form
Prices respond rapidly to public and non public info. No one can profit trading on this info.
Investment Adviser Representative (IAR)
Provides advice to client. Partner, officer, director of an IA
Brochure Rule
Require IAs per Investment Advisers Act of 1940 to provide clients a disclosure doc detailing IAs business, fees, conflicts of interest and education. Can be obtained from Form ADV 2. Must be delivered to clients at or prior to entering advisory contract.
Form ADV
Required by IA reg application with SEC. has 2 parts 1) IA name, location, fiscal year of business, form of business, owners of business, names of officers, # of employees, total AUM, states in which Adviser register. Filing must be updated annual @ fiscal year end. and also be updated within 30 days 2a) advisory firms business, investment style, fees, conflicts of interest 2b) education and work background of key personnel who make investment decisions or manage accounts. Must be filed within 90 calendar days of advisers fiscal year end.
Relationship between Admin and USA
Rules written by admin to interpret provisions of USA. Rules issued not required to be published as matter of public record.
Net Capital requirements for BD must be kept in accordance with provisions of the
SEC 1934. Can also be set by state @ a level under Federal requirement.
Required to register with ______ if managing more than $100m in Assets
SEC and NOT the state
Criminal Liability
Serious intentional violations of USA that can incur criminal liability and criminal penalties
Investment Adviser Solicitor
Solicits clients for IA. Must register with state as IA or Adviser Representative NOT with SEC
Civil Liability
State law (USA) - refund all monies, plus interest plus legal fees - action must be brought within 1 yr of discovery, no action can be brought after 3 yrs of elapse - offer of rescission - 30 days to accept
Investment Adviser if giving advice of securities of
Stocks & Bonds
Net worth
TA - TL
dollar weighted average return
aka internal rate of return. used for Hedge funds. accounts for all cash flows (deposits) into the fund and all cash redemptions from fund made by investor
time weighted average return
aka total return accounting for dividends. used for Mutual Funds
Exempt from registration of IA per USA
do not have to register in State. Any place with no place of business in the state who only clients are other advisers, federal covered advisers, BDs, deposit taking institutions, insurance companies, investment companies, employee benefit plans with assets of at least $1M and governmental agencies, IA that has no place in state with 5 of fewer clients in past 12 months
U6 form
filed by regulators when they take disciplinary or legal action against BD, IA, IAR. Info goes into Central Registration Depository or Investment Adviser Registration Depository
Executor of estate subject to federal estate tax permitted to use alternate valuation date
for depreciated securities that is 6 months after date of death
Who can be bene for trust
grantor, trustee, beneficiary
high water mark
index value yearly at anniversary date of purchase and bases the interest added on the highest index value of product life vs the value @ date of the purchase
Security exempt from resignation in state if
isolated non issuer transaction. This is because when IPO was set out it had already had been to be registered
If BD net capital falls below min requirement for reg in State, the admin has power to
make proper showing to a court of law to appoint a receiver over the firms assets
Annual reset method
measure return achieved each year over a 7 yr life and adds interest to annuity based on annual reset
Articles of Incorporation
must be retained for life of firm plus additional 3 years
Registration of BD constitutes firms
officers, partners, directors as agents
Defendant
person accused in court of law. hint: has to defend themselves.
Plantiff
person bringing case against other in court of law
Completion of registration application is at
proper documents and filing fee
Blue Sky Laws require
registration of securities offerings in each state
Minimum Net Capital
required for BDs and IA. NOT Agents of BD of IA.
Non exempt transaction
securities transaction where security involved must be reg in State and subject to any advertising filling rules of State
Investment companies obligated to send financial statement to SHs
semi-annually
If IA takes custody of funds there must be
surrey bond coverage of $35M or minimum NW.
Per IAA1940 (Investment Advisers Act of 1940) if an IA wishes to renew advisory contact which will allow prepaid advisory fees of $1,200+ 6mo in advance
the IA must file form ADV Part 2A and balance sheet promptly
Civili liability
unintended violations of USA. to fix, customer must be made whole plus any fees.
Civil claims must be made
within 3 years of contract of sale but n later than 2 years of discovery of facts constituting the violation
If agent withdraws from employment from B-D , withdrawal takes effect
within 30 days
Point to point valuation
compares index value @ purchase date to value at end date
