Test 2 Part 1 - Incorrect Only

An IA hires a third-party solicitor to recruit new clients. Which of the following records is the IA required to keep?

A statement, signed by the client, that both the IA's and solicitor's brochures were received

In which of the following situations did an agent commit fraud?

An agent knowingly sold a nonexempt, nonregistered security to a retail client who could well afford the risk involved. Fraud requires the intent to deceive. The agent knowingly deceived the client by selling unregistered securities, therefore committing a securities fraud. An agent is not required to discuss all information, only that which is material information. The term retail client refers to individual or noninstitutional clients.

Strategic Capital Asset Managers (SCAM) is an investment adviser that is registered in 5 states. In lieu of preparing a fancy brochure, SCAM is permitted to provide its clients with a copy of its

Form ADV Part 2A and Part 2B The Form ADV Part 2 (both parts) is acceptable for use as the firm's brochure. Part 1 is for registration purposes, and Part 1B is only used by state-registered advisers (as this firm is). Part 2, Appendix 1 is used for investment advisers who offer wrap fee programs. As a state-registered investment adviser, SCAM does not file any forms with the SEC.

Under the Uniform Securities Act, which of the following statements is (are) TRUE regarding registration of broker-dealers and agents? Those defined as broker-dealers must be registered with the state before transacting any securities business. An agent of a broker-dealer must become registered with the state before transacting business. Agents of a broker-dealer are not required to be registered.

I and II All persons defined as broker-dealers or agents under the act must register as such before transacting any securities business. It is unlawful for a broker-dealer to employ an agent unless the agent is registered.

A federal covered investment adviser employs the services of a third-party solicitor. The Investment Advisers Act of 1940 would require the solicitor to deliver a copy of the IA's brochure a copy of the solicitor's brochure a copy of the solicitor's script a copy of the IA's Form ADV Part 1

I and II Third-party solicitors must provide a copy of the investment adviser's brochure (Form ADV Part 2A), as well as a copy of the solicitor's brochure. The solicitor's script must be approved by the IA, and only the SEC receives a copy of the Form ADV Part 1.

As defined in the NSMIA, federal covered securities would include open-end investment companies registered under the Investment Company Act of 1940 closed-end investment companies registered under the Investment Company Act of 1940 that trade on the OTC Bulletin Board bonds listed on the OTC Link where the company's common stock trades on Nasdaq bonds issued by the Province of Ontario

I, II, and III Under the NSMIA, federal covered securities include all investment companies registered under the Investment Company Act of 1940, regardless of where they trade. Any stock listed on Nasdaq is federal covered, and that makes any security equal to or senior (like their bonds) also federal covered, regardless of where they trade. Canadian government and municipal securities are not federal covered (although under the Uniform Securities Act, they are exempt securities).

Kapco Advisers registers with the Administrator on April 1. Pete Patel, an IAR with Kapco, registers on the same day. Both of them file renewal papers, accompanied by the appropriate fees, on March 31 of the following year. Which of the following statements are TRUE? Kapco's renewal was timely. Kapco's renewal was late. Patel's renewal was timely. Patel's renewal was late.

II and IV Regardless of when initial registration occurs, the renewal date for all professionals is December 31.

Under the Securities Exchange Act of 1934, which of the following statements is NOT true about the authority of the SEC to investigate violations of securities laws?

The SEC may investigate violations of the Uniform Securities Act. NOT - The SEC may investigate violation of the Securities Exchange Act of 1934. The SEC's regulatory mandate is only on the federal level. The Uniform Securities Act is under the jurisdiction of the states, not the federal government or one of its agencies. Because the SROs, such as FINRA, were created through amendments to the Exchange Act, the SEC has the ultimate authority over their rules.

Transactions meeting certain conditions are exempt from the Uniform Securities Act's registration and advertising filing requirements. Which of the following transactions does NOT meet those conditions to qualify as an exempt transaction?

The sale of U.S. government securities to a retail client's IRA by a registered government securities dealer In the sale of U.S. government securities to a retail client, the security is exempt, but the transaction is not. Had the sale been to an institutional client, it would have been exempt. An offer is not a transaction.

Under the Uniform Securities Act, if no denial or proceedings are pending, when does an investment adviser registration become effective?

When the Administrator so orders, but not to exceed 30 days Registrations become effective at noon on the 30th calendar day after the date of filing if there are no denial orders or pending proceedings.

All of the following activities comply with the requirements for agency cross transactions EXCEPT

after proper written disclosure, an adviser recommends the transaction to both the seller and the buyer An adviser cannot recommend a trade to both buyer and seller in an agency cross transaction, a transaction in which the adviser acts on behalf of both buyer and seller. The adviser can act as broker to both parties upon proper written disclosure and consent, provided the adviser did not recommend the transaction to both sides.

Under the Uniform Securities Act, all of the following persons may provide investment advice incidental to their normal business without requiring registration as an investment adviser EXCEPT

an economist The Uniform Securities Act does not grant an economist exemption from registration, but it does offer an exemption to teachers, lawyers, and engineers if the investment advice is incidental to their business; thus the acronym LATE for lawyers, accountants, teachers, and engineers.

The USA defines all of the following as securities EXCEPT

term life insurance Term life insurance is an insurance contract, not a security. Remember the short list of those items which are not securities.

Superb Wealth Opportunities (SWO) is a broker-dealer registered with the SEC and 10 states. Recently, the SEC has completed an investigation of SWO's recordkeeping practices and has determined that they are not in accordance with SEC Rule 17a-4. If, as a result of a hearing, SWO is fined,

the Administrator of the state where SWO maintains its principal office could investigate SWO to determine if their recordkeeping requirements were violated Even though no state can enforce more stringent recordkeeping rules than those of the SEC, a broker-dealer can still be subject to state action if the rules of the state in which the broker-dealer maintains its principal office are broken. It is the usual case that when the SEC suspends or revokes the registration of a BD, the states in which that BD are registered follow suit, but it would be highly unlikely to revoke the registration when the SEC only levied a fine.