SIE Exam Prep Quiz Questions Unit 11

All of the following are stages of money laundering except A)initiation. B)placement. C)integration. D)layering.

A

Patrick the intern, who has passed the SIE but is not yet registered, is sitting at the front desk greeting customers and answering the phone. During the course of an hour, he interacts with several customers and prospective customers. Which of these activities might be a rules violation for Patrick? A)Providing current quote information on a stock in response to a customer's request. B)Directing a walk-in prospect to the information kiosk. C)Asking if a prospect would like to attend a seminar. D)Having a customer take a seat while a representative comes out to escort the customer into a meeting.

A Activity directly related to investment sales and solicitations, including quotes, is the activity of a registered person. The other activities are acceptable for a nonregistered person.

Holding customer mail is consistent with your broker-dealer's in-house rules. Considering this, if requested to do so, the broker-dealer must A)verify at reasonable intervals that the customer's instructions still apply. B)request approval from the Securities Exchange Commission (SEC). C)have the customer request anew after six months and then each three months thereafter. D)await approval from Financial Industry Regulatory Authority (FINRA).

A If the broker-dealer chooses to hold customer mail, once requested to do so in writing the broker-dealer must verify at reasonable intervals that the customer's instructions still apply. The rule regarding holding customer mail does not require the broker-dealer to request or get SEC or FINRA approval and there is no requirement that the customer make additional requests to continue having the broker-dealer hold mail.

An investor has a friend who mentions that an officer of the firm he works for reported to the CEO, in a confidential meeting, that a product had great test results. If this information were public, it would have a positive effect on the corporation's stock price. If the investor now makes a large purchase of the corporation's stock, who beside the investor might be liable under the Insider Trading and Securities Fraud Enforcement Act of 1988? A)The investor's friend B)The firms board of directors (BOD) C)The officer in the meeting D)The CEO of the corporation

A In this scenario, the friend is the tipper, and the investor is the tippee. Both are liable under the act. The officer and the CEO of the corporation were exchanging information in a confidential meeting and are not liable. Note: The registered representative who does the trade and the representative's broker-dealer firm could be liable if they should have known that the information was nonpublic and material information.

An investor has a friend who mentions that an officer of the firm he works for reported to the CEO, in a confidential meeting, that a product had great test results. If this information were public, it would have a positive effect on the corporation's stock price. If the investor now makes a large purchase of the corporation's stock, who beside the investor might be liable under the Insider Trading and Securities Fraud Enforcement Act of 1988? A)The investor's friend B)The officer in the meeting C)The CEO of the corporation D)The firms board of directors (BOD)

A In this scenario, the friend is the tipper, and the investor is the tippee. Both are liable under the act. The officer and the CEO of the corporation were exchanging information in a confidential meeting and are not liable. Note: The registered representative who does the trade and the representative's broker-dealer firm could be liable if they should have known that the information was nonpublic and material information.

An investor has received insider information from a research scientist that a chemical company has just invented a new polymer that could be very useful in making strong, light girders in building construction. The investor buys several thousand shares of the company's stock through his registered representative. Several months later, when the patent comes out, the investor sells the stock for a substantial capital gain. Which of the following is least likely to be found liable under the Insider Trading Act? A)The CEO of the chemical firm B)The registered representative C)The investor D)The research scientist

A In this scenario, the tipper was the research scientist and the tippee was the investor. They certainly may be held liable. The registered representative (and his firm) may be held liable if it can be shown they had knowledge that insider information was being used. As offered in this question scenario, there is no reason given to think the CEO of the chemical firm was involved.

What is the final stage of money laundering? A)Integration B)Placement C)Initiation D)Layering

A Initiation is a made up term not related to money laundering. Placement is the first step, followed by layering and integration.

Pete, a registered representative, is discussing his work as an investment banker with is family during his grandfather's birthday party. He was particularly excited about an upcoming IPO for Narcissus, a social media company. Several of his family members express an interest in purchasing the stock at the IPO. Which of Pete's family would be allowed to participate in the IPO of Narcissus Inc., stock? A)His grandfather B)His brother's spouse C)His parents D)His brother

A Pete's grandfather is not a restricted person under Rule 5130. Parents, siblings, and in-laws are all prohibited from participating in the IPO.

The three stage of money laundering include A)placement, layering, and integration. B)placement, layering, and insertion. C)insertion, processing, and integration. D)soak, rinse, and spin.

A Placement is the first part of the process where the money is moved from its illegal source. The money is then moved through multiple financial transactions to obscure its origins, called layering. Last, the money moves into the legal system appearing as a legal transaction, called integration.

Dissemination of rumors by a registered representative in order to influence the price of a stock is which of the following? A)Illegal B)Legal as long as the information is accurate C)Legal because it is an expression of free speech D)Illegal if the information is false or misleading

A Spreading rumors for the purpose of manipulating market prices is unethical and illegal, even if the information is technically accurate.

The final phase of money laundering, when the money moves into the legal economy, is called A)integration. B)layering. C)placement. D)insertion.

A The phases of money laundering are placement (i.e., where the cash enters of process), layering (i.e., multiple transactions through multiple institutions to hide the original source of the funds), and finally integration (i.e., where the money enters the legitimate financial system).

A member firm receives an order to purchase shares in a common stock initial public offering (IPO) from another broker-dealer for a customer. Regarding restricted persons, the member must A)obtain a written representation that the buyer is not a restricted person. B)obtain a list of all of the broker-dealer clients to determine eligibility. C)obtain a statement witnessed by a notary representing that the buyer is not restricted. D)refuse to accept the order.

A When receiving an order to buy a new equity issue, a member must obtain a written representation that purchasers are in compliance with rules regarding sales of new issues to restricted persons (i.e., they are not restricted persons).

Under what circumstances could a broker-dealer firm share in a financial loss with a customer? A)If the loss was due to an error on the part of the firm B)If the firm also shares in the profits of the customer's investments C)If the loss is proportional to the firm's share of the investment D)If the customer is an immediate family member of the firm's CEO

A While a registered representative may share in profits and losses with a customer, provided certain requirements are met, the firm itself may only share in losses, and only if the loss is due to an error on the part of the firm.

All of the following are types of prohibited activities except A. wash sales B. pump and dump C. churning D. front running

A A wash sale is not prohibited (LO 8.g). Using the losses from a wash sale to lower your taxes is. Pump and dump, churning, and front running are all prohibited practices.

Which of the following transactions done in a single day would NOT cause a firm to file a Currency Transaction Report (CTR)? A. Deposits of a series of four checks of $3,000 each B. Twenty-two deposits of $500 cash C. Four deposits of $3,000 cash and an outbound wired funds transaction for $10,000 D. A withdrawal of $12,000 from an account, followed by a deposit of $11,000 cash into a third-party account

A Checks are not currency. All the others include cash deposits in excess of $10,000.

Which of the following statements concerning the delivery of statements is not correct? A. Statements must be sent monthly. B. Statements must be sent at least quarterly. C. Statements must show all activity in the account since the previous statement. D. Statements must be sent monthly if the account holds penny stocks.

A Statements are only required to be sent monthly if the account holds penny stocks.

Which of the following is not one of the three general classes of communication with the public? A. Institutional B. Retail C. Correspondence D. Educational

D Though communication may be educational, the three classes of communication are institutional, retail, and correspondence.

Brokers placing orders for their own account ahead of notably large customer orders that are known to be entering the market in an attempt to gain from the price movement that is likely to occur is an example of what prohibited activity? A)Front running B)Insider trading C)Breakpoint sale D)Marking the close

A Although each of these choices is a violation of Financial Industry Regulatory Authority (FINRA) rules and securities laws, when an investment professional places an order for his own account or one that he controls ahead of other orders that are so large that they will likely move the market in an attempt to gain from the price movement is an illegal activity known as front running. Those caught front running would be subject to severe sanctions by market regulators.

Records relating to a Currency Transaction Report (CTR) must be retained for A)five years. B)three years. C)four years. D)six years.

A Currency Transaction Reports (CTRs) must be retained on file, together with other records generated in conjunction with them, for five years.

Rules to protect the public during initial public offerings (IPOs) include all of the following except A)shares may be held to reward others who can direct business to the member. B)members may not withhold shares for their own benefit. C)members cannot take advantage of their insider status to gain access to shares for their own benefit. D)shares must be offered to the public at the public offering price.

A Designed to protect the integrity of the public offering process, the rules ensure that members make a bona fide public offering of securities at the public offering price, do not withhold securities in a public offering for their own benefit or use shares to reward others in a position to direct future business to the member and that members and their associated persons do not take advantage of their insider status to gain access to new issues for their own benefit at the expense of public customers. Note that this is an "except" question. "Shares may be held to reward . . ." is not only not in the rule, it is expressly prohibited.

A client phones his registered representative in September and informs the representative that he will be studying abroad in Europe for the remainder of the year. The client wants the firm to hold his mail. What action should the representative take? A)The representative must instruct the client that the request must be made in writing. B)The representative should temporarily change the client's address to a secure PO box to prevent the theft of his mail. C)The representative should have all mail forwarded directly to the branch to protect against identity theft. D)The representative should send duplicates to Paris since the SEC customer protection rules state mail cannot be held.

A FINRA rules require that all requests to hold mail must be made through written instruction from the customer. The instruction must include the period during which the mail hold is requested. If the requested period included in the instructions is longer than three consecutive months, then the customer's instructions must include an acceptable reason for the request (e.g., safety or security concerns).

All of these are steps that firms take to protect the interests of their senior customers except A)refuse to open an account for senior citizens. B)make reasonable efforts to obtain the contact information of a trusted contact. C)refuse to accept trades that appear suspicious. D)place a hold on a customer account if exploitation is suspected.

A Refusing to do business with senior citizens is not only inappropriate, it is a bad business plan. All of the other actions may be allowed in order to protect a customer.

Under regulation S-P, nonpublic personal information would not include a customer's A)home address. B)information collected through an internet cookie. C)account balance. D)social security number.

A The Securities and Exchange Commission (SEC) in Regulation S-P notes examples of nonpublic personal information to include a customer's Social Security number, account balances, transaction history, and any information collected through an internet cookie. A home address would not be considered nonpublic personal information.

People who enter trades at or near the same time, in the same security as a person who has inside information, are known as A)contemporaneous traders. B)tippees. C)tippers. D)informers.

A The simple definition of contemporaneous is existing, occurring, or originating during the same time. Contemporaneous traders may sue persons that have violated insider trading regulations, and suits may be initiated up to five years after the violation has occurred.

A suspicious activity report would be triggered if the broker-dealer suspects a transaction involves funds derived from illegal activity and A)involves at least $5,000 in funds or other assets. B)involves more than $10,000 in funds or other assets. C)involves at least $10,000 in funds or other assets. D)involves more than $5,000 in funds or other assets.

A The triggering amount for a suspicious activity report (SAR) is at least $5,000. Do not confuse this with a Currency Transaction Report (CTR), which is triggered by an amount greater than $10,000.

All of the following are classifications of communication under Rule 2210 except A)wholesale. B)retail. C)institutional. D)correspondence.

A There is no wholesale class of written communication.

A form of market manipulation that attempts to hold the price of the security down is called A)capping. B)free riding. C)churning. D)supporting.

A This can be done by shorting the stock to push the price down. It is illegal if it is used to manipulate the market.

Which of the following customers is of special concern for potential exploitation? A. Philip Johansen, age 70 B. Tia Roberts, age 60 C. Tony Gating, age 30, known to be irresponsible D. Bruce Henning, age 55, going through a midlife crisis

A Special concern is for customers 65 and older and other adults that are unable to protect their own interest due to illness, injury, or disability. Just being irresponsible or in crisis is not enough.

Regarding the purchase of new equity issues by restricted persons, which statements are true? I. An investment club is permitted to buy a new equity issue at the offering price. II. An investment club is not permitted to buy a new equity issue at the offering price. III. An investment club that has eight members with equal ownership, one of which is a registered representative, is permitted to buy a new equity issue at the offering price. IV. An investment club that has 12 members with equal ownership, one of which is a registered representative, is permitted to buy a new equity issue at the offering price. A)I and III B)I and IV C)II and IV D)II and III

B As long as an investment club has no restricted persons as members, it may purchase new equity issues at the public offering price. An investment club that has restricted persons as members may still participate in an initial public offering (IPO) so long as the total ownership of the club's assets by restricted persons does not exceed 10%. A registered representative is a restricted person under the rules regarding the purchase of new equity issues. In III the registered representative owns 12 ½ % (100% ÷ 8 = 12 ½) of club's assets. In IV the registered representative owns 8 1/3% (100% ÷ 12 = 8 1/3), under the 10% maximum allowed.

A registered representative sends a note to 22 prospective customers touting the value of investing in the Windmill Value Fund. This is an example of which of the following? A)Research B)Correspondence C)Institutional communication D)Retail communication

B Correspondence means any written (including electronic) communication that is distributed or made available to 25 or fewer retail investors within any 30-calendar-day period.

Due to the potential for exploitation, special care should be employed when opening accounts for customers that are in good health and are A)age 60 or older. B)age 65 or older. C)age 18 or older. D)age 55 or older.

B FINRA defines the impacted accounts as those for specified - - adults who are: age 65 and older, - or age 18 and older, whom the member reasonably believes has a mental or physical impairment that renders the individual unable to protect her own interests.

Which of the following are exempt from the requirement to maintain a business continuity plan? A)Introducing broker-dealers B)None of these C)Investment Advisers D)Clearing broker-dealers

B FINRA requires member firms to create and maintain a business continuity plan (BCP) to deal with the possibility of a significant business disruption.

There are two types of do not call list. What are they and how long do names stay on the list? A)Broker-dealer list and names remain until removed by the customer, and national list and names remain for five years B)Broker-dealer list and a national list; names remain on list until removed by customer C)Broker-dealer list and name remain on list for five years, and national list and names remain on the list for 10 years D)National list and names remain on list for five years, and broker-dealer list and names remain on list for 10 years

B For both the broker-dealer list and the national Do-Not-Call list, names are not to be called unless the customers request that their name be removed from the list. There was a prior law that only required the broker-dealer list to hold names for five years, but that has changed and names remain on the list indefinitely.

The Telephone Consumer Protection Act of 1991 exempts all of these entities except A)debt collectors. B)booking services for commercial enterprises. C)not-for-profit companies. D)survey takers.

B If the cold caller is looking to book appointments for a commercial entity, it must abide by the rules. Legitimate efforts made to collect a debt, those taking polling surveys, and charities are exempt from these rules.

A broker-dealer's business continuity plan (BCP) to be enacted in the event of a significant business disruption requires all of the following except A)prompt customer access to funds and securities. B)notification to regulators within one hour of the event. C)alternate physical location of employees if needed. D)data backup and recovery (hardcopy and electronic).

B In the event of a significant business disruption communication with regulators is essential but the rule does not specify notification within one hour of the event. Each of the remaining points is a requirement of a firms business continuity plan (BCP).

During the course of a day a customer makes six separate cash deposits at six different branches totaling over $11,000. This may be an example of A)integration, and an SAR should be filed. B)structuring, and a CTR should be filed. C)extraction, and a CTR should be filed. D)application, and an SAR should be filed.

B It appears that the customer is structuring deposits to avoid attention being drawn to the amount of cash he is depositing. This activity is called structuring. As the transactions exceed $10,000 in a day of currency, your firm would file a currency transaction report with FinCEN.

Rules to protect the investing public during the public offering process include all of the following except A)securities industry insiders may not take advantage of their insider status to gain access to new issues for their own benefit. B)limiting the number of shares of an initial public offering (IPO) that may be purchased by the issuing company's employees. C)member firms may not withhold securities in a public offering for their own benefit. D)members must offer the securities at the public offering price.

B No rule limits the number of shares that an issuer can direct to persons who are employees of the issuer.

Which of the following is true regarding nonregistered personnel of FINRA member firms? A)All employees of a member firm must be registered. B)Nonregistered employees of broker-dealers have a limited scope of activities. C)Nonregistered employees of broker-dealers have an unlimited scope of activities as long as they are under the direct supervision of a principal. D)Nonregistered employees of broker-dealers have an unlimited scope of activities as long as they are under the direct supervision of a registered representative.

B Nonregistered employees of broker-dealers have a limited scope of activities. They may not perform securities business even if supervised by registered persons.

Regarding the purchase of new equity issues (IPOs), restricted persons may A)purchase shares of a new issue only if they work for a bank. B)not purchase shares of a new issue. C)purchase shares of a new issue only in amounts that are not substantial in relation to the total number of shares being issued. D)purchase shares of a new issue only if they are employed by a broker-dealer as a registered representative.

B Persons characterized as restricted persons are prohibited from purchasing shares of new issues in any quantity. If one is already restricted, working for a bank or a broker-dealer does not exempt them from the rule.

Broker/dealers who reserve the right to disclose nonpublic private information about their customers to unaffiliated third parties must A)require that customers wishing to opt out send a written request with signature witnessed by a notary. B)provide notice to customers at the time of the account opening and provide reasonable means for customers to opt out of such disclosures. C)provide reasonable means for customers to opt out of such disclosures only at the time of the account is opened. D)provide notice to customers each time a transaction occurs within the account and provide reasonable means for customers to opt out of such disclosures.

B Regulation S-P requires that if a broker/dealer reserves the right to disclose nonpublic personal information to third nonaffiliated parties, it must notify the customer at the time of the account opening and annually thereafter. Means to opt out of the disclosures must be reasonable and easy. Requiring a written request to opt out would not be considered reasonable means under the regulation.

Which of the following is true regarding retail communications? A)They must be approved if they are only sent to prospective, not current, customers. B)They must be approved prior to use or filing. C)They must be filed with the SEC within 10 days of use. D)They may be reviewed after the fact.

B Retail communication must be approved by a principal before use or filing with FINRA (not the SEC).

FINRA Rule 2210 on communications with the public would apply for all of the following except A)a website. B)a voicemail left for a customer. C)a flyer sent to 20 prospects. D)a text message.

B Rule 2210 applies to written communication. Written communication does not require paper, just words made up from letters. If they can read it, it is considered written communication.

There are rules regarding customer statements. All of the following statements reflect those rules except A)customer statements containing penny stocks must be sent monthly, even if no activity occurred in the account. B)activity limited to only stock splits or stock dividends do not require monthly statements be sent. C)customers must be alerted to report any inaccuracies or discrepancies promptly. D)customer statements must be sent no less frequently than quarterly.

B Statements are required quarterly, unless the account contains penny stocks. A statement is required for any month penny stocks are in the account. All statements sent require notice that inaccurate information is reported promptly.

Which of the following publishes and maintains a list of known terrorists and drug traffickers and those controlled by them or acting on their behalf? A)The Federal Open Market Committee (FOMC) B)The Office of Foreign Assets Control (OFAC) C)The Financial Industry Regulatory Authority (FINRA) D)The Financial Crimes Enforcement Network (FinCEN)

B Such a list is maintained by OFAC and is available to broker-dealers and other companies in the financial industry. It must be consulted when a firm takes on a new customer and on other occasions. The FOMC carries out open-market operations for the Federal Reserve. FinCEN is concerned with detecting and preventing the various steps of money laundering, and FINRA, of course, is responsible for regulating trades at the NYSE and in the over-the-counter (OTC) market in the United States.

A cash deposit of $12,000 in a single day would be reported to FinCEN by which of the following? A)Daily Trade Log B)Currency Transaction Report (CTR) C)Suspicious Activity Report (SAR) D)No report would be needed.

B The Bank Secrecy Act requires broker-dealers to report any currency received in the amount of more than $10,000 on a single day via a CTR.

The use of information that is material to a company's prospects, and is not yet public, in order to make a profit or avoid a loss on a security is A)wise investing. B)insider trading. C)day trading. D)informed trading.

B The definition of insider trading is the use of material, nonpublic, information to make a profit or avoid a loss.

What are some of the steps a firm could take to prevent potential exploitation of seniors? I. Refuse to open accounts for people over 64 years old II. Freeze the account if they suspect exploitation III. Make a reasonable effort to obtain the name of a trusted contact person IV. Close the account when the customer turns 65 unless they appoint a POA A)II an IV B)II and III C)I and III D)I and IV

B The firm must make a reasonable effort to obtain the name of a trusted contact, but if the customer refused, the account could still be opened. If the firm suspects abuse, they may freeze the account but are not required to.

Which of the following is not a category of communications with the public designated by Financial Industry Regulatory Authority (FINRA)? A)institutional B)market letters C)retail D)correspondence

B The three categories of communications with the public designated by FINRA are retail, correspondence, and institutional. Market letters, as all sales or advertising pieces would, can fall under any of the three communications categories depending on to whom they are sent or made available to, and the number of recipients.

Seacoast Securities is underwriting the IPO of WearTech Technology. Which of these may purchase the IPO at the POP? A)Ida, the CIO of Seacoast Securities B)Bob, a customer of Seacoast Securities C)Patricia, a portfolio manager for an investment adviser that custodies at Seacoast Securities D)Pete, a representative of Seacoast Securities

B There are no restrictions against customers. Associates of the firms and portfolio managers are restricted persons.

All of the following are true of prohibited activities except A)the use of manipulative devices is on FINRA's list of prohibited activities. B)FINRA has published a list of all the prohibited activities. C)the improper use of customer assets is on FINRA's list of prohibited activities. D)the use of fraudulent devices is on FINRA's list of prohibited activities.

B There can never be a complete list of all the ways to cheat people. If it looks like lying, cheating, or stealing, don't do it.

All of the following are true regarding customer account statements except A)customers must be alerted to report any inaccuracies or discrepancies promptly. B)monthly statements need to be sent if the account activity is the receipt of interest or dividends. C)customer statements must be sent at least quarterly, activity or not. D)customer statements containing penny stocks must be sent monthly, even if no activity occurred in the account.

B Though most firms send a monthly statement, the requirement is that a BD send statements at least quarterly. In any month an account contains penny stocks, a statement is required to be sent. All statements sent require notice that inaccurate information should be reported promptly.

Jim is a restricted person under Rule 5130. Which of the following members of Jim's family may buy a new issue at the IPO? A. Jim's brother Robert B. Jim's grandfather Farris C. Jim's sister DeAnn D. Jim's daughter April

B Grandparents, aunts, and uncles are not immediate family under Rule 5130.

The receptionist at a broker-dealer opens all incoming mail and forwards it to various departments and people of the firm. Which of the following statements are true? I. The receptionist must be fingerprinted. II. The receptionist need not be fingerprinted. III. The receptionist must be registered with FINRA. IV. The receptionist need not be registered with FINRA. A. I and III B. I and IV C. II and III D. II and IV

B When opening mail for the BD, it is inevitable that the receptionist will handle monies and securities from customers and, as such, will need to be fingerprinted. Registration is not required.

In accordance with the terms of the Telephone Consumer Protection Act of 1991 (TCPA), all of the following statements are true except A)calls made on behalf of tax-exempt nonprofit organizations are exempt from the act. B)the firm must maintain a do-not-call list documenting all those who have asked to be placed on it. C)cold calls may be made between 8:00 am and 9:00 pm in the time zone from which the representative is making the call. D)calls made to parties with whom the caller has an established business relationship are exempt from the act.

C Any solicitation made must occur between 8:00 am and 9:00 pm in the recipient's time zone (not the callers). Firms must maintain a do-not-call list, and the act exempts calls made on behalf of tax-exempt nonprofit organizations and calls made to parties with whom the caller has an established business relationship.

Mrs. Jones is an employee of a member firm and as such is a restricted person regarding the purchase of new issues. She belongs to an investment club and has a 1% interest in the club's brokerage account. The investment club A)is a restricted account but will be allowed to purchase equity shares of an IPO. B)is not a restricted account but will not be allowed to purchase equity shares of an IPO. C)is not a restricted account and will be allowed to purchase equity shares of an initial public offering (IPO). D)is a restricted account and will not be allowed to purchase equity shares of an IPO.

C Because the restricted person's interest in the club's brokerage account does not exceed 10%, the investment club account is not considered a restricted account. If not restricted, the club can purchase shares of an equity issue at the public offering price if it chooses to.

Mrs. Jones is an employee of a member firm and as such is a restricted person regarding the purchase of new issues. She belongs to an investment club and has a 1% interest in the club's brokerage account. The investment club A)is not a restricted account but will not be allowed to purchase equity shares of an IPO. B)is a restricted account but will be allowed to purchase equity shares of an IPO. C)is not a restricted account and will be allowed to purchase equity shares of an initial public offering (IPO). D)is a restricted account and will not be allowed to purchase equity shares of an IPO.

C Because the restricted person's interest in the club's brokerage account does not exceed 10%, the investment club account is not considered a restricted account. If not restricted, the club can purchase shares of an equity issue at the public offering price if it chooses to.

Jackson Raleigh a registered representative in Memphis, TN, has a client that is a pension fund manager for the Tiger Pension Fund. Mr. Raleigh creates several flyers of informational literature about the funds available in the Tiger Pension Fund and emails them to the fund manager so that the fund manager can print copies of the flyers and make them available to the participants in the pension fund. Financial Industry Regulatory Authority (FINRA) would classify these flyers as A)institutional communications. B)sales literature. C)retail communications. D)correspondence.

C FINRA has three classifications of communication with the public: correspondence is communication to 25 or fewer retail investors in a 30 day period; retail communications is to more than 25 retail investors in a 30-day period; and institutional communication is going to banks, insurance companies, and mutual funds et cetera. Even though the material was sent to the pension fund which could be considered institutional communications because the material was being forwarded to retail investors, it is considered retail communication.

Regarding the potential financial exploitation of seniors, impacted accounts would be those for individuals A)age 55 and older, or age 21 and older who the member reasonably believes has a mental or physical impairment that renders the individual unable to protect her own interests. B)who are past the age of 75 and the member reasonably believes has a mental or physical impairment that renders the individual unable to protect her own interests. C)age 65 and older, or age 18 and older who the member reasonably believes has a mental or physical impairment that renders the individual unable to protect her own interests. D)who at any age are unable to protect her own interests.

C Financial Industry Regulatory Authority (FINRA) has specifically identified for the purpose of preventing financial exploitation of seniors individuals who are age 65 and older, or age 18 and older who the member reasonably believes has a mental or physical impairment that renders the individual unable to protect her own interests.

Rules to protect the investing public during the public offering process include all of the following except A)member firms may not withhold securities in a public offering for their own benefit. B)members must offer the securities at the public offering price. C)limiting the number of shares of an initial public offering (IPO) that may be purchased by the issuing company's employees. D)securities industry insiders may not take advantage of their insider status to gain access to new issues for their own benefit.

C No rule limits the number of shares that an issuer can direct to persons who are employees of the issuer.

An associated person for a broker-dealer firm would not be required to be fingerprinted if their activities were limited to which of the following? A)Entering unsolicited trades B)Opening mail C)Answering the phone D)Opening accounts

C Nonregistered (or nonlicensed) persons may not engage in investment banking or other securities business (opening an account, soliciting trades, etc.). Registered persons must be fingerprinted. Nonregistered persons may handle customer money and securities. Nonregistered persons handling customer assets (which will likely come in the mail) must be fingerprinted.

Under the USA PATRIOT Act, financial firms must create and maintain records of wire transfers only A)to retail investors. B)to bank customers. C)of $3,000 or more. D)to a different state.

C Records of wire transfers of $3,000 or more must kept, regardless of their destination.

A customer leaves the sale proceeds from a recent transaction in the account. This amount would be considered I. a free credit balance. II. a margin debit balance. III. available to the customer at any time. IV. a loan to the broker-dealer, who will pay interest to the customer. A)II and III B)II and IV C)I and III D)I and IV

C Sale proceeds that are not reinvested and held in the account at the broker-dealer are considered a free credit balance. These funds are available to the customer on demand (freely available).

Mr. Smith enters a trade in a stock at the same time as Mr. Jones, who has inside information regarding that company. Mr. Smith is considered A)an informer. B)an outside tippee. C)a contemporaneous trader. D)an inside tipper.

C Someone who enters into a transaction at the same time as someone else who has and may be acting on inside information is known as a contemporaneous trader. Contemporaneous traders may sue persons who have violated insider trading regulations, and suits may be initiated up to five years after the violation has occurred.

Which of the following would not be allowed under the Conduct Rules without firm approval? A)Borrowing from a customer who is also the representative's sibling B)Borrowing from a customer that is a bank C)Borrowing from a customer who lives on the same block D)Borrowing from a customer who is also a parent

C The Conduct Rules permit the following five types of lending arrangements: 1. There is an immediate family relationship between the representative and the customer (no notice or approval is needed). 2. The customer is in the business of lending money (e.g., a bank) (no approval is needed). 3. The customer and the representative are both registered persons with the same firm (firm approval required). 4. The customer and the representative have a personal relationship outside the broker-customer relationship (firm approval required). 5. The customer and the representative have a business relationship outside the broker-customer relationship (firm approval required).

Under regulation S-P, nonpublic personal information would not include a customer's A)account balance. B)social security number. C)home address. D)information collected through an internet cookie.

C The Securities and Exchange Commission (SEC) in Regulation S-P notes examples of nonpublic personal information to include a customer's Social Security number, account balances, transaction history, and any information collected through an internet cookie. A home address would not be considered nonpublic personal information.

Brad is the brother of Chester. Chester is the CFO of Seabird Airlines. Over Sunday dinner, Chester mentions that Seabird is planning to raise its dividend payment significantly. He also tells Brad that the news will not be announced until this coming Tuesday, so keep it quiet. On Monday, Brad buys several hundred shares of Seabird and made a substantial profit. Brad is subject to which of these potential penalties? I. Up to 20 years in prison II. Up to 25 years in prison III. Penalties of up to three times the profit made IV. A maximum penalty of $1 million A)II and III B)II and IV C)I and III D)I and IV

C The criminal penalties for an individual are up to 20 years and up to $5 million. The civil penalties are up to three times the profit made or loss avoided. The $1 million minimum civil penalty applies to controlling persons (like an RR or a BD).

One characteristic of large criminal enterprises is that they often generate significant sums of cash. The process of obscuring the source of this cash so that it can be used for legitimate purposes is A)cash cleaning. B)money cleaning. C)money laundering. D)integration.

C The term for this activity is money laundering. Money laundering is an illegal activity, and the source of the initial funds are acquired illegally.

Communicating the information in a firm's BCP to customers occurs at all of the following times except A)at account opening. B)ongoing on the firm's website. C)annually. D)when requested.

C There is no annual communication requirement for a business continuity plan (BCP).

Which two of the following criteria, taken together, would cause a particular fact to be considered insider information under the Insider Information and Securities Fraud Enforcement Act of 1988? I. It is personally embarrassing to the CEO of the corporation. II. It is not known to the general public. III. It could have a strong effect on the welfare of the corporation. IV. It has only been reported in the industry's technical journals. A) II and IV B) I and III C) II and III D) I and IV

C To be considered insider information, a fact must not be known to the general public and must be material, meaning that if it were public, the company could be strongly affected (either positively or negatively). Personal embarrassment to the CEO by itself is not sufficient, and any publication, even in an obscure technical journal, constitutes disclosure to the public.

Trade confirmations must be provided to a customer no later than when? A)Seven business days B)Within two days C)Settlement day D)Trade day

C Trade confirms must be provided no later than the day the trade settles. Remember that some trades settle T+1, and settlement date is business days, not calendar days.

Seacoast Securities is a new FINRA member firm. It is preparing a new marketing campaign, including a mass mail advertisement. The advertisement must be A. filed with FINRA within 10 days of first use B. filed with the SEC within 10 days of first use C. filed with FINRA at least 10 days before use D. approved by FINRA before use

C A new member firm is required to file a copy of all retail communications with FINRA at least 10 days before use. The filing with FINRA is just a record; no approval from FINRA is required.

Which of the following is not a rule under the TCPA of 1991? A. Calls must be made between 8:00 am and 9:00 pm in the prospect's time. B. Solicitors must identify themselves and their company. C. Calls must be made between 9:00 am and 8:00 pm in the prospect's time. D. All telemarketing firms must maintain a do-not-call list.

C Calls must be between 8:00 am and 9:00 pm.

Seabird Securities does not have any firm policies regarding borrowing or lending arrangements between associated persons and customers. Under which of the following circumstances would a registered representative be allowed to borrow from a customer? A. Borrowing from his Uncle Joe B. Borrowing from Dustin, his college buddy C. Under no circumstance D. Borrowing from Dr. DuVall, his optometrist

C If a firm has no policy regarding loans to and from customers, then the activity is not allowed.

The Office of Foreign Assets Control is a division of A. the State Department B. the Justice Department C. the Treasury Department D. the Federal Reserve Bank

C OFAC is part of the Treasury Department.

Which of the following is not a step in the money laundering process? A. Placement B. Layering C. Insertion D. Integration

C The three steps of money laundering are placement, layering, and integration. Insertion is not one of the steps.

Which of the following customers may purchase an IPO at the public offering price? A)A broker-dealer firm B)Sibling of a registered representative C)Portfolio managers D)Grandmother of a registered representative

D

Firms must file a SAR within how many days of becoming aware of a suspicious transaction? A)10 days, and they are required to notify the customer involved that a report has been filed B)10 days, and they are prohibited from notifying the customer involved that a report has been filed C)30 days, and they are required to notify the customer involved that a report has been filed D)30 days, and they are prohibited from notifying the customer involved that a report has been filed

D A SAR must be filed within 30 days of becoming aware of the suspicious activity, and firms are prohibited from notifying the customer involved that a report has been filed.

Firms must file a SAR within how many days of becoming aware of a suspicious transaction? A)30 days, and they are required to notify the customer involved that a report has been filed B)10 days, and they are required to notify the customer involved that a report has been filed C)10 days, and they are prohibited from notifying the customer involved that a report has been filed D)30 days, and they are prohibited from notifying the customer involved that a report has been filed

D A SAR must be filed within 30 days of becoming aware of the suspicious activity, and firms are prohibited from notifying the customer involved that a report has been filed.

Which of the following duties is permissible for a nonregistered employee of a broker-dealer? A)Taking down the details of a trade for a registered person to enter B) Selecting literature for an appropriate investment for a customer C) Entering a trade for a customer that is in a hurry D) Answering the phones and responding to noninvestment questions

D A nonregistered person may not enter a trade or record the details to pass along to a registered person. Trade information must flow directly between a customer and a registered representative. How would a person determine what is an appropriate investment without performing a suitability analysis?

Which of the following persons would not need to be fingerprinted? A)A registered representative in training B)A nonregistered person who handles and distributes incoming mail C)A principal of a firm who does not deal directly with the public D)A nonregistered person who answered phone calls and takes messages

D All registered persons must submit fingerprints, and all principals are registered persons. A person that handles incoming mail is very likely to handle checks, certificates, and other customer assets and must submit fingerprints.

Which of the following would not be allowed to purchase an initial public offering at the public offering price? A)An investment advisor on behalf of a mutual fund B)A person owning 5% of the issuer's common stock C)The grandparent of an officer of the managing underwriter D)An employee of a member firm

D Among the restricted persons are member firms and employees of member firms. If an investment adviser directs a fund they manage to invest, it is the mutual fund, not the adviser, that is the customer. Person's owning 10% or more are restricted. Grandparents of restricted persons are not restricted.

A customer has been found in violation of freeriding. As a penalty which of the following will occur? A)Cash or marginable securities must be in the account for all purchases made for the life of the account. B)Only closing transactions can be entered to close existing positions and the account closed immediately thereafter. C)The account will be frozen for 10 days and no new transactions can occur unless there is cash or marginable securities in the account before any other purchase is made. D)The account will be frozen for 90 days and no new transactions can occur unless there is cash or marginable securities in the account before any other purchase is made.

D As a penalty for freeriding, an account will be frozen for 90 days and no new transactions can occur unless there is cash or marginable securities in the account before any other purchase is made.

Firms are required to provide a copy of their business continuity plan (BCP) at which of the following times? A)Quarterly B)Monthly C)Annually D)When requested

D BCPs must be provided at account opening, made available on the firm's website, and whenever a customer requests a copy.

A broker-dealer's business continuity plan (BCP) should be reviewed A)on an as needed basis or if prompted by Financial Industry Regulatory Authority (FINRA) to do so. B)semiannually by a principal of the firm. C)biannually by a registered representative designated to do so. D)annually by a principal of the firm.

D Business continuity plans (BCPs) are required to be reviewed annually by a principal of the firm.

The category of correspondence, one of the three identified as being communications with the public, is defined as A)communications that are targeted only at individuals who currently maintain accounts with the broker-dealer. B)electronic communications only, that have been made available to 25 or fewer retail investors within the past 6 months. C)written communications only, that have been made available to 25 or fewer retail investors within the past 6 months. D)any written or electronic communication that is distributed or made available to 25 or fewer retail investors within any 30 calendar-day period.

D Correspondence can be written or electronic. It can be targeted at either account holders or nonaccount holders of the broker-dealer. The criteria that makes the communication correspondence is that it is distributed to 25 or fewer retail customers within any 30 calendar-day period.

Which federal department leads the United States' efforts to detect and prevent money laundering? A)The Department of Defense B)The Department of Homeland Security C)The Home Office D)The Treasury Department

D Detecting and preventing money laundering is one of the jobs of the Treasury Department.

Under the TCPA, solicitors must consult do-not-call lists that are no older than A)3 months. B)1 year. C)6 months. D)30 days.

D Do-not-call registries are republished every 30 days. Numbers do not age out of the do-not-call list. If a number is on the list, do not call.

An institutional customer has requested that you provide an article that they can use in their quarterly retail client newsletter. Rule 2210 states that you must A)obtain preapproval from a principal, but no filing is required. B)have a principal review the communication and a copy must be filed with FINRA. C)have a principal review the communication but no filing is required. D)obtain preapproval from a principal and file a copy with FINRA.

D Even though this is going to an institutional customer, you have good reason to believe it will be sent to retail customers; as such, this must be treated as retail communication.

All of the following are classifications of communications with the public except A)retail communications. B)institutional communications. C)correspondence. D)sales literature.

D FINRA has three classifications of communication with the public. Correspondence is communication to 25 or fewer retail investors in a 30-day period. Retail communications is to more than 25 retail investors in a 30-day period. Institutional communication is going to banks, insurance companies, mutual funds, et cetera.

Which of the following is a classification of communications with the public? A)Educational material B)Advertising C)Sales literature D)Correspondence

D FINRA has three classifications of communication with the public. Correspondence is communication to 25 or fewer retail investors in a 30-day period. Retail communications is to more than 25 retail investors in a 30-day period. Institutional communication is going to banks, insurance companies, mutual funds, et cetera.

Which of these customers are considered most susceptible to exploitation by others? I. Individuals age 65 and over II. Individuals age 62 and over III. Individuals with significant physical or mental impairment IV. Individuals who are legally retired regardless of age A)II and III B)I and IV C)II and IV D)I and III

D Firms should take special precautions to protect customers over age 65 and individuals suffering from an impairment that may impair their ability to care for their own interests.

A customer has purchased a stock and then sold it before paying for the purchase. This is generally known as A)backing away. B)a wash sale. C)pegging. D)freeriding.

D Freeriding is a term used when securities are purchased and then sold before making payment for the purchase. Freeriding is generally prohibited in both cash and margin accounts.

What dollar limit is placed on damages if a suit is filed based on allegations of manipulative practices? A)$500,000 B)$250,000 C)300% of the damages suffered D)No dollar limit

D No dollar limit is placed on damages collectible from a lawsuit based on allegations of fraudulent or manipulative practices. Note that this is an issue of fraud. Even though the LEM doesn't say specifically that there is no limit, you should understand that someone found guilty of fraud will need to pay for all actual damages incurred.

Which of the following is a permissible activity for a nonlicensed associate of a member firm? A)Opening a new account B)Answering basic investing questions C)Recommending a security based on a customer's objectives D)Answering the phones and taking messages

D Nonregistered (or nonlicensed) persons may not engage in investment banking or other securities business (opening an account, soliciting trades, etc.). Nonregistered persons may handle customer money and securities. Nonregistered persons handling customer assets must be fingerprinted.

Regarding the purchase of new equity issues (IPOs), restricted persons may A)purchase shares of a new issue only if they work for a bank. B)purchase shares of a new issue only if they are employed by a broker-dealer as a registered representative. C)purchase shares of a new issue only in amounts that are not substantial in relation to the total number of shares being issued. D)not purchase shares of a new issue.

D Persons characterized as restricted persons are prohibited from purchasing shares of new issues in any quantity. If one is already restricted, working for a bank or a broker-dealer does not exempt them from the rule.

The process of making money that appears to have come from legal activities when it in fact it came from illegal activities is called A)layering. B)placement. C)integration. D)money laundering.

D Placement, layering, and integration are the stages of money laundering. Money laundering is the whole process.

In what circumstances may a representative personally guarantee the performance of an investment? A)If the representative has the financial ability to make a guarantee B)There is no limit on this type of guaranteed C)The representative's guarantee is no more than 50% of historical return D)Under no circumstance

D Representatives are not allowed to make personal guarantees.

What is the purpose of Rule 5130 regarding restricted persons and initial public offerings? A)To prevent insiders of issuers from participating in the secondary markets B)To restrict initial public offerings to institutional investors and insiders C)To require certain disclosures in initial public offerings D)To protect the integrity of the public offering process and to protect public investors

D Rule 5130 is designed to protect the integrity of the public offering process and to protect public investors. To prevent financial industry insiders from having advantages during IPOs of common stock, Rule 5130 ensures that - members make a bona fide public offering of securities at the public offering price (POP); - members do not withhold securities in a public offering for their own benefit or use such securities to reward persons who are in a position to direct future business to the member; and - industry insiders, such as members and their associated persons, do not take advantage of their insider status to gain access to new issues for their own benefit at the expense of public customers.

Which of the following would require the filing of a SAR? Any transaction alone or in aggregate involving at least A)$,3000 on a single day. B)$5,000 on a single day. C)$3,000 and appears to serve no business or legal purpose. D)$5,000 and appears to serve no business or legal purpose

D SARs are required to be filed by the firm if the transaction appears to serve no business or legal purpose, and the transaction involves alone or in aggregate at least $5,000.

All of these would be seen as reasons to investigate activity in a customer account except A)trading activity in an account owned by a deceased person. B)transfers between customer and representative accounts. C)elements of the account information (i.e., an address) are not consistent. D)setting up and RMD in January for a customer that is only 72 years old.

D Setting up aRequired Minimum Distribution (RMD) for someone required to take an RMD is not suspicious. Funds should never travel between a customer and employee account. Deceased individuals are unable to place trades. If street numbers and zip codes do not match that is rather suspicious, for example.

Under the Telephone Consumer Protection Act, do-not-call lists may be no older than how many days? A)15 B)45 C)60 D)30

D The Federal Trade Commission maintains the National Do Not Call Registry. Telemarketers are also required to check numbers against this list. Like a company list, the national list being used may not be more than 30 days old.

The president of a pharmaceutical company sells his stock in the company after learning that the Food and Drug Administration (FDA) is going to deny sales of a new drug that it was reviewing for the company. The registered representative that executes the order and knows of the denial informs a key client and recommends the client sell their stock in the pharmaceutical company. According to the Insider Trading and the Securities Fraud Enforcement Act of 1988, all of the following may be guilty of insider trading except A)the president of the pharmaceutical company. B)the registered representative. C)the registered representative's client. D)the FDA.

D The act prohibits insiders trading on or communicating nonpublic information. Both the tipper (the person who relays the information) and the tippee (the person who receives the information) are liable, as is anyone who trades on information that they know or should know is not public or who has control over the misuse of this information. In this case, the president of the company who knew of the nonpublic information, traded on it and passed it on, the registered representative who also knew of the information and passed it on, as well as the client who received the information and traded based on it would all be liable under the act.

The Telephone Consumer Protection Act mandates that unsolicited sales calls must occur A)no earlier than 9:00 am and no later than 8:00 pm recipient's time. B)no earlier than 8:00 am and no later than 9:00 pm solicitor's time. C)no earlier than 9:00 am and no later than 9:00 pm recipient's time. D)no earlier than 8:00 am and no later than 9:00 pm recipient's time.

D The rule is that calls may only occur between 8:00 am and 9:00 pm prospect's time. Though 9:00 am to 8:00 pm and 9:00 am to 9:00 pm fits within the time allowed, that is not the rule. Remember to always choose the best answer from the responses provided.

If a broker-dealer suspects that a transaction involves funds derived from illegal activity, a suspicious activity report (SAR) would be triggered at what threshold? A)More than $5,000 in funds or other assets B)More than $10,000 in funds or other assets C)At least $10,000 in funds or other assets D)At least $5,000 in funds or other assets

D The threshold for triggering a suspicious activity report (SAR) is at least $5,000 in funds or other assets. Do not confuse this with a Currency Transaction Report (CTR), which is triggered by amounts greater than $10,000.

Buzz the broker has a radio show where he discusses penny stocks. In a recent show, Buzz told his audience that he just bought into stock in the Dipper Diaper company at $0.05 a share. He continues to talk about the strength and great growth potential of the company for several days. The stock rises to $3.00 a share and Buzz sells his position. He continues to talk up Dipper Diapers for another week then drops it from his daily discussion. What activity does this exemplify? A)Disseminating rumors B)Front running C)Short-term trading D)Pump and dump

D This is a classic pump and dump. Buzz abused his position as a public figure to perpetuate positive news about a company he owns. Shortly after closing his position, he stopped talking up the stock.

Joshua, a registered representative, calls a prospect at 7:00 pm only to be told that the prospect is in a different time zone, where it is 10:00 pm. Joshua has A)Not violated the TCPA because it is still within the allowed time at his location B)Not a violation because the rule is no longer valid in due to emerging mobile technology C)Not a violation because the area code was local to Joshua's location D)Violated the TCPA because it is after 9:00 pm the prospect's time

D This is still a violation. The rule clearly states that the time requirements are based on the prospective customer's time. The existence of cell phones does not invalidate the law.

The federal agency charged with the collection and analysis of financial transactions in order to detect illegal activity is A)the Department of Justice. B)the Internal Revenue Service (IRS). C)the Federal Bureau of Investigation (FBI). D)the Financial Crimes Enforcement Network (FinCEN).

D This is the job of FinCEN, a division of the Treasury Department. FinCEN disseminates the intelligence it collects to other government agencies, particularly to the Justice Department.

The practice of executing an excessive number of trades in order to increase commission revenue is known as A)hyperactive trader. B)tactical trading theory. C)burn through. D)churning.

D Trading that is excessive in frequency or size and serves no investment purpose is called "churning."

All of the following would require that updated account information be sent to the customer for confirmation within 30 days except A)36 months have passed since the account was opened. B)the customer informs the firm of a change in investment objectives. C)the account is a newly opened one. D)the account records system has been changed to a new format.

D Updated account information must be sent to the customer with 30 days for confirmation upon the opening of the account, at least once every 36 months thereafter, and in the event of the customer notifying the firm of changes in any information shown or listed on the account form.

When making unsolicited cold calls to prospects, a registered representative must disclose all of the following to the individual called except A)the name of the member broker-dealer firm. B)the address at which the caller may be contacted. C)the caller's name. D)the address of any securities issuer mentioned during the call.

D When making cold calls, the caller must disclose his name and the name of the member broker-dealer, the telephone number or address at which the caller may be contacted, and that the purpose of the call is to solicit the purchase of securities. When securities of any issuer are mentioned in such a call, there is no requirement to disclose the address of the issuer.

Penalties for insider trading may include all of the following except A. up to $5 million for a person B. up to 20 years in prison for a person C. up to $25 million for a firm D. up to 20 years in prison for a firm

D You can't put a firm in prison. Entities don't go to jail; natural persons do.

The Office of Foreign Asset Control maintains a list of people and organizations with whom U.S. citizens and companies are not allowed to do business. This list is called the A)Banned and Barred Individuals List. B)Specially Designated Nationals List. C)Persona Non Grata List. D)Known Criminal and Terrorist List.

This list of prohibited organizations and individuals is called the Specially Designated Nationals List.