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NEW QUESTION # 79
Which of the following entities are subject to post-registration provisions?
I. broker-dealers
II. agents
III. investment advisers
IV. investment adviser representatives
- A. II and IV only
- B. I and III only
- C. All of the entities are subject to post-registration provisions.
- D. I and II only
Answer: B
Explanation:
Explanation
Only selections I and III are subject to post-registration provisions. Broker-dealers and investment advisers can be required to file advertising materials and financial reports with the Administrator, as specified by the Administrator. They are also required to keep records to the specifications of the Administrator. These records will include items such as client e-mails, client letters of complaint, and advertising brochures and must be kept for three years.
NEW QUESTION # 80
Needy Investment Advisers, LLC needs a loan. One of its wealthier clients has offered to lend the firm the money at the prime rate of interest. A promissory note is drawn up stipulating the terms of the loan. Based on these facts,
- A. Needy will be in violation of securities laws unless a waiver of compliance form is signed by the client and submitted to the administrator.
- B. Needy is not in danger of violating any securities laws since the loan was unsolicited and has been properly executed via a promissory note.
- C. Needy is in violation of securities laws by acting as an issuer of securities.
- D. Needy is in violation of securities laws only if the face value of the note is for $50,000 or more.
Answer: C
Explanation:
Explanation
In accepting a loan from a wealthy client, Needy is in violation of securities laws by acting as an issuer of securities. Under NASAA Model Rules, investment advisers may not borrow money from clients unless the client is in the business of lending money, as would be the case if the client were a financial institution. It doesn't matter if the client is in agreement with the loan; waiver of compliance agreements is prohibited by both the NASAA Model Rules and the Investment Advisers Act of 1940. Nor does it matter that the loan was unsolicited and formalized with a promissory note.
NEW QUESTION # 81
A client calls CanDo Broker-Dealers with a market-not-held order to buy 5,000 shares of China Security
and Surveillance Technology, Inc. (CSR), which sells on the NYSE, "at a good price today." The stock had
opened at $5.13, traded as high as $5.36 during the day, and closed at $5.10. CanDo executed the
purchase at a price of $5.31, so at market close, the client had lost $1,050. The client can
- A. refuse to pay CanDo commissions for the purchase.
- B. sue CanDo for not getting him the best price of the day-or anything close to it.
- C. do nothing about it.
- D. refuse to pay for the stock on the settlement date.
Answer: C
Explanation:
If a client calls CanDo with a market-not-held order to buy 5,000 shares of CSR, he is leaving
the price and timing of the trade to the broker's discretion, and the broker cannot be held responsible if the
price turns out not to be optimal after-the-fact. The client still owes CanDo its commissions, and to refuse
to pay for the stock on the settlement date would subject the client to criminal penalties.
NEW QUESTION # 82
Harry Lange manages the investment portfolio for the Fidelity Magellan Mutual Fund. Mr. Lange is a(n)
- A. investment adviser.
- B. agent.
- C. investment company.
- D. broker-dealer.
Answer: A
Explanation:
Explanation
If Harry Lange is managing the investment portfolio of Fidelity Magellan Mutual Fund, he is an investment adviser. He is making the investment decisions and receives a percentage of the assets under management as his compensation. He is not selling the mutual fund or the fund's investors anything, which is the job of a broker-dealer or an agent. Fidelity Magellan is the investment company.
NEW QUESTION # 83
Until yesterday Maddie was a registered agent employed by the broker-dealer, QuikDeals. Yesterday afternoon, issues that had been brewing between her and another employee of the firm came to a head, and Maddie impulsively quit her job.
At this point,
- A. Maddie has thirty days to find a job with another broker-dealer, or she will need to file a new registration application.
- B. Maddie is required to call all of her clients at QuikDeals to inform them she is no longer employed there.
- C. Maddie has sixty days to find a job with another broker-dealer, or she will need to file a new registration application.
- D. Maddie will have to file a new application for registration with the Administrator upon finding employment with another broker-dealer since she is no longer considered to be a registered agent by the state.
Answer: D
Explanation:
Explanation
When Maddie quit her job, her status as a state-registered securities agent was automatically terminated, and she will need to file a new application for registration with the Administrator upon obtaining a position with another broker-dealer. If she does so within thirty days, her registration will become effective as soon as she has filed her application and paid her application fee. While she is required to notify the Administrator that she has terminated her employment with QuikDeals, there is no requirement that she contact any of her clients at QuikDeals.
NEW QUESTION # 84
Assuming there is not a stop order or a proceeding pending, under the registration by coordination
process a security's registration with the state becomes effective:
- A. immediately after approval by the SEC as long as the registration statement has been on file for at least
2 0 days or the Uniform Securities Act has provided an exemption to this waiting period. - B. only when it is approved by the state Administrator, regardless of whether it has been approved by the
SEC. - C. immediately subsequent to approval by the SEC, regardless of how long the registration statement has
been on file. - D. only when it is approved by the state Administrator, who will review the registration documentation
upon notification that SEC approval has been granted.
Answer: A
Explanation:
Under the registration by coordination process, the security's registration with the state
becomes effective immediately after approval by the SEC as long as the registration has been on file for
at least 20 days or the Uniform Securities Act has provided an exemption to this waiting period. This
assumes, of course, that there is not a stop order or a proceeding pending.
NEW QUESTION # 85
Layered Corporation wants to issue a bond that will have warrants attached. Each warrant gives the holder the right to buy 5 shares of Layered's common stock at a price stipulated on the warrant.
In this instance, Layered must file to register which of the following securities with the state?
I. the bonds
II. the warrants
III. the common stock
- A. I only
- B. I and II only
- C. I, II, and III
- D. I and III only
Answer: C
Explanation:
Explanation
If Layered issues a bond with warrants attached that give the holder the right to buy shares of its common stock, Layered must register all three securities. The bond is being offered for sale with the warrants attached, so both the bond and the warrant are being offered for sale and must be registered.
Furthermore, the Uniform Securities Act stipulates that the "sale or offer for sale of the right" to buy another security "is considered to include an offer of the other security." Therefore, offering the warrant for sale is effectively an offer to sell the stock as well, so the stock must be registered.
NEW QUESTION # 86
Which of the following entities is subject to be accused of churning?
I. investment advisers
II. investment adviser representatives
III. broker-dealers
IV. agents
- A. II and IV only
- B. I, II, III, and IV
- C. II, III, and IV only
- D. I and III only
Answer: B
Explanation:
Explanation
Selections I, II, III, and IV-investment advisers, their representatives, and broker-dealers and their agents-are subject to accusations of churning. Any activity on the part of any of these parties that suggests that they are engaged in encouraging excessive trading on the accounts of their clients makes them subject to allegations of churning their customers' accounts.
NEW QUESTION # 87
Which of the following practices would be prohibited in connection with the sale of investment company
shares?
I. selling a client shares of a load stock fund when a no load stock fund with the same investment
objective exists
II. selling the client shares of five S&P 500 Index mutual funds, offered by different fund families
III. encouraging a client to swap his money between two funds in the same family without informing him
that this creates a taxable event
- A. I and II only
- B. I, II, and III
- C. I and III only
- D. II and III only
Answer: D
Explanation:
The scenarios described in Selections II and III only would be prohibited. Five S&P 500
Index mutual funds, even if offered by different fund families, all have the same investment
objective-duplicating the returns earned on the S&P 500 Index, and they will be invested in very similar
stocks. Therefore, the client is getting little or no more diversification of risk by investing in five funds over
investing in just one. The agent is just getting richer from more commissions. Encouraging a client to
swap his money between two funds in the same family without informing the client that this creates a
taxable event is not providing the client with "full and fair disclosure." It may well be in the client's best
interest to make the switch, but he needs to be made aware of the tax consequences. It is not necessarily
prohibited to sell a client shares of a load stock fund when a no load stock fund with the same investment
objective exists as long as the agent believes that the load stock fund is a better investment for his client.
NEW QUESTION # 88
While on vacation in Colorado, Massachusetts resident Ms. Jetset meets Mr. Snow, a registered
representative with a Colorado broker-dealer, on a ski lift and accepts a dinner engagement with him later
that evening, during which he obtains her cell phone number. A week later, while she is lounging around
in her Florida beach condo, he calls and interests her in a local software company that is selling its
preferred stock to investors and encourages her to buy it. Ms. Jetset tells Mr. Snow she'll think about it
and calls him after she returns to her home in Massachusetts to tell him to buy the stock for her and sends
him a check via express mail. Later, Ms. Jetset learns that the preferred stock certificate that she received
is-and always was-a worthless piece of paper, and that, in fact, no such company ever existed. Which
state Administrator has jurisdiction in this instance?
I. the Administrator of the state of Colorado
II. the Administrator of the state of Florida
III. the Administrator of the state of Massachusetts
- A. I only
- B. I and II only
- C. I, II, and III
- D. I and III only
Answer: C
Explanation:
All three state administrators have jurisdiction since Mr. Snow made the offer to sell from
Colorado, to a person who was in Florida at the time, and Ms. Snow accepted the offer and received the
certificate in her home state of Massachusetts. According to NASAA, an Administrator has jurisdiction
over all offers and all acceptances of offers to purchase or sell securities if they "originate from, are
directed to, or are accepted in a state.
NEW QUESTION # 89
An investment adviser representative with Capital Investment Advisors, Inc. advised his client to invest
$ 5,000 in bonds of a firm that the adviser claimed was an investment "almost as risk-free as investing in
U.S. government bonds; maybe even more so, given the magnitude of the government deficit these
days." The client paid a total of $200 for this advice. The bonds paid interest at the rate of 6%, with
semiannual payments, and the client received $300 in interest payments before the firm went belly-up at
the end of a year, and its bonds were deemed worthless. The client has filed suit, and its attorneys' fees
and court costs are expected to be $1,000. When the investment is a bond, the state has recently been
assessing an interest rate equal to the interest rate paid by the security as an equitable interest payment
guideline in civil penalties. The maximum the client can expect in civil penalties is
- A. $5,900.
- B. $6,000.
- C. $5,200.
- D. $6,200.
Answer: D
Explanation:
The maximum amount the client can expect in civil penalties in this case is $6,200. In civil
court, the client is awarded the cost of the investment plus any attorneys' fees and court costs, plus any
interest that the state deems appropriate, less any income earned on the investment. In this instance, the
only income is the interest that the client earned, which is identical to the interest that the Administrator
mandates the investment adviser pay, so that is a wash. The investment advisory fee is included as part
of the investor's cost, so the client can sue for the recovery of his original investment of $5,000 plus the
$ 200 he paid for the investment advice plus the court costs and attorneys' fees of $1,000, or $6,200 total.
NEW QUESTION # 90
You have passed the necessary exams (congratulations!) and are applying for registration as a securities agent.
It is already the end of September. Therefore, you must pay
- A. one-fourth of the annual fee required since only one quarter of the year remains.
- B. the full annual fee, and your license will expire on September 30th next year.
- C. the full annual fee, and your license will expire on December 31st next year.
- D. the full annual fee, and your license will expire on December 31st this year.
Answer: D
Explanation:
Explanation
Once you have passed the necessary exams and are applying for registration as an agent, you must pay the full annual fee and your license will expire on December 31st of the current year, no matter how late in the year it is.
NEW QUESTION # 91
Which of the following describes a prohibited practice in the sale of shares of investment companies?
I. Sandy Slacker hands her client the fund's prospectus and tells him that the prospectus will provide him all that he needs to know about loads and fees associated with the fund.
II. Elliot Eager tells a client who has an investment objective that includes current income that a certain bond fund has a current yield of 8% and provides the client with a prospectus so that the client can peruse the average annual returns that the fund has generated in past years when the client has the time.
III. After explaining all the fees and loads involved in two different bond funds as well as the difference between current yield and total return, Patty shows the client the data on the average annual returns that the two bond funds provided. She explains to the client that the municipal bond fund has a lower yield than the similar-risk corporate bond fund because the interest income the client will receive from the municipal bond fund will be free from federal taxation, while the interest income on the corporate bond fund is fully taxable.
- A. I only
- B. All the choices describe prohibited practices in the sale of shares of investment companies.
- C. I and II only
- D. I and III only
Answer: C
Explanation:
Explanation
Only the scenarios described in Selections I and II represent prohibited practices. The NASAA rules state that it is not enough to hand a client a prospectus, but that the agent must fully explain all sales charges and also to explain the difference between current yield and total return to the client and present that client with the fund's most recent average annual returns over the past year, 5-year, and 10-year periods. Sandy and Elliot have not done this in the scenarios described. In Selection III, Patty has done so and has also provided the client with accurate and useful information regarding why a municipal bond offers a lower yield than a corporate bond fund.
NEW QUESTION # 92
"Federal covered securities" were defined and exempted from state registration requirements by the:
- A. Uniform Securities Act (USA.)
- B. National Securities Markets Improvement Act of 1996 (NSMIA.)
- C. National Conference of Commissioners on Uniform State Laws (NCCUSL.)
- D. Gramm-Leach-Bliley Act of 1999 (GLBA.)
Answer: B
Explanation:
Explanation
The National Securities Markets Improvement Act of 1996 defined "federal covered securities" and exempted them from state registration requirements. The Gramm-Leach-Bliley Act focused on financial institutions and provided for their registration as broker-dealers under certain conditions. The National Conference of Commissioners on Uniform State Laws (NCCUSL) is the organization that drafted the Uniform Securities Act, which is not comprised of actual laws itself, but is, instead, just a guideline for each state to use when formulating its own securities laws.
NEW QUESTION # 93
You are an investment adviser representative. Your client, Mr. I. M. Pulse, calls you with what he thinks is exciting news. He just passed a restaurant and saw Microsoft's Bill Gates having lunch with a local entrepreneur who owns a small firm in the computer software industry that trades on the OTC pink sheets. He is sure that this means Microsoft is negotiating a purchase of the smaller company and instructs you to take the cash balance in his account and buy shares of the local company. You should
- A. do both A and B.
- B. advise Mr. Pulse that he may be jumping the gun, but place the order if he insists.
- C. tell Mr. I.M. Pulse that this would be an illegal insider trade and that you are unable to fulfill his request.
- D. call your supervisor and alert him immediately of Mr. Pulse's attempt to have you place an illegal order on his behalf in case Mr. Pulse decides to place the order elsewhere.
Answer: B
Explanation:
Explanation
If Mr. Pulse wants you to place an order to buy a firm that he thinks will become a target of Microsoft based on seeing Bill Gates and the owner of the firm dining together, you should, as his adviser, inform him that he may be jumping the gun and drawing a false conclusion, but you should place the order if he continues to insist. It is a legitimate order, and you are obligated to follow his instructions. It does not constitute illegal insider trading because Mr. Pulse has no way of knowing what the two men were talking about. They may just be old high school buddies catching up on the news.
NEW QUESTION # 94
Which of the following describes a prohibited practice in the sale of shares of investment companies?
I. Sandy Slacker hands her client the fund's prospectus and tells him that the prospectus will provide him
all that he needs to know about loads and fees associated with the fund.
II. Elliot Eager tells a client who has an investment objective that includes current income that a certain
bond fund has a current yield of 8% and provides the client with a prospectus so that the client can peruse
the average annual returns that the fund has generated in past years when the client has the time.
III. After explaining all the fees and loads involved in two different bond funds as well as the difference
between current yield and total return, Patty shows the client the data on the average annual returns that
the two bond funds provided. She explains to the client that the municipal bond fund has a lower yield
than the similar-risk corporate bond fund because the interest income the client will receive from the
municipal bond fund will be free from federal taxation, while the interest income on the corporate bond
fund is fully taxable.
- A. I only
- B. All the choices describe prohibited practices in the sale of shares of investment companies.
- C. I and II only
- D. I and III only
Answer: C
Explanation:
Only the scenarios described in Selections I and II represent prohibited practices. The
NASAA rules state that it is not enough to hand a client a prospectus, but that the agent must fully explain
all sales charges and also to explain the difference between current yield and total return to the client and
present that client with the fund's most recent average annual returns over the past year, 5-year, and
1 0-year periods. Sandy and Elliot have not done this in the scenarios described. In Selection III, Patty has
done so and has also provided the client with accurate and useful information regarding why a municipal
bond offers a lower yield than a corporate bond fund.
NEW QUESTION # 95
Jeremy Sly considered himself somewhat of an inventor. The only problem was that his day job interfered with his opportunity to exercise his creativity. He came up with a plan to get outside investors to support his inventive activities. To this end, he produced and distributed a brochure advertising partnership interests with a guaranteed return on investment of at least 15% after the first 12 months, based on what he had allegedly generated from his other (non-existent) inventions.
Given these facts, is Jeremy guilty of any security violations under the Uniform Securities Act (USA)?
- A. Yes. Even an "offer" to sell securities must not contain any untruths.
- B. No. An interest in a partnership is not considered a security.
- C. No. It is not against the law to believe in oneself and promote one's ideas.
- D. No. The facts don't indicate whether any partnership interests were actually sold, and there can be no violation unless there is a sale.
Answer: A
Explanation:
Explanation
Yes. Jeremy is guilty of security violations under the Uniform Securities Act when he provides misleading information when offering securities for sale, even if no securities are actually sold. Partnership interests fall under the definition of securities, and Jeremy's claim to have generated a return of at least 15% on other inventions that he never created is an absolute falsehood.
NEW QUESTION # 96
Broker-Dealer Wheeler has no offices in the state. Wheeler does, however, sell corporate bonds from his portfolio to banks and insurance companies located in the state that purchase the bonds for their investment portfolios. He executes about twelve of these transactions a year. Wheeler profits from the price appreciation of the bonds during the time he held them, but receives no other form of compensation. Based on these facts,
- A. Wheeler need not register in the state, but the securities must be registered before they can be sold to in-state investors.
- B. Wheeler must register as a broker-dealer in the state, and the securities must also be registered before they can be sold to in-state investors.
- C. Wheeler must register as a broker-dealer in the state, but the securities do not need to be registered.
- D. Wheeler need not register in the state, and the securities are also exempt from registration.
Answer: D
Explanation:
Explanation
Since Wheeler has no offices in the state and is selling bonds from his portfolio to institutional investors, Wheeler need not register in the state, and the securities are exempt from registration. Broker-dealers with no physical location in a state that are doing business with other broker-dealers or with institutional investors such as banks and insurance companies that do have offices in that state are exempted from registering in the state.
Securities sales to institutional investors are exempt transactions, and securities sold in exempt transactions are themselves exempt from state registration requirements.
NEW QUESTION # 97
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