Intentional misrepresentation, concealment, or omission of the truth for the purpose of deception. Disclosures must be provided how and when? In writing and prior to rendering any advice. No one dealing in securities is exempt from: Anti-fraud and common law deceit provisions exist at what levels? All levels. Federal, state, and local. It is unlawful to directly/indirectly transact business in a state as a B/D or agent unless registered under: It is unlawful to employ any device to _________ or make ANY ___________. Defraud another person; Untrue statement of material fact or omit them. An agent who commits fraud may be:
Advisory activities: It is unlawful for any person to receive directly/indirectly any consideration for advising others in securities to:
- Exception: Principal disclosure requirement does not apply to transactions w/ customer of B/D if not actings an IA in relation to transaction It is unlawful for any person to enter into, extend, or renew investment advisory contract unless stated in writing:
- Rule permitscompensation based on total value averaged over a define period.
Which Act allows performance based fees and to who? The Investment Advisers Act of 1940 allows for Qualified ClientsONLY.
Transfer of rights and duties of a contract to another party. What is a third party assignment? Someone besides contract holder wants t transfer to another party, requiring contract owner consent. If an IA is a partnership when is it considered an assignment?
Note: NO assignment to members having only a minority interest (Change in membership / Change in contract terms)
Advisory contracts do not need to contain: Names, titles, addresses, and other personal info of all principles of the firm. Examples (13) of fraudulent practices:
Examples of conflicts of interest:
Examples of client activities that violate the USA:
Examples (11) of intentional misrepresentation / omissions:
What is an administrator? The designated state official who administers and and enforces securities regulations and the USA in a given state. What can an administrator or a person appointed by an administrator do? Can investigate (publicly or privately) any prospective violation of securities law within jurisdiction [Any time, any place - in or out of administrators state] An administrator has authority over a person when:
The administrator may (at their discretion):
An administrator can not directly: Arrest, enjoin, or indict individuals, or confiscate property. Failure to obey any order may be punished by the court as: Administrators may issue/apply subpoenas at who's request? Agency request (Such as FINRA) or an administrator of another state if activities occurred in their state. Initial administrator actions generally take place in: The state of violation or firm registration. The Admin may, if violations have occurred or are about to occur:
Surety bonds exist so that if: The registrant becomes insolvent, customers have some remedy available to them. Any person who willfully violates ANY provision of the act, shall upon conviction be fined: Up to $5,000 and/or imprisoned up to 3 years. Indictment or information may not be returned more than: 5 years after alleged violation. Agents can not be relieved of violation even if: The customer agrees. Ex: Stealing money from a client but they are not pressing charges. (Civil liabilities) No person can sue after: 3 years of the contract sale or investment advice, OR 2 years after discovery of facts of violation (whichever occurs first) (Civil liabilities) A person offering/selling securities by untrue statements or omission of material fact is liable. The buyer can sue to: Recover consideration paid plus interest and reasonable attorneys fees -less any income received. Ex-Careless RR places incorrect trade orders Any person (IA, IAR, B/D, or agent) may avoid civil liability by offering a: Refund of purchase price plus interest prior to the filing of a lawsuit. If a client dies after filing suit what happens? The suit is still valid to continue. Course of action "survives" the death of any person. Administrators actions must be in the publics best interest and/or: For the protection of investors. Must abide by and enforce the rules of the USA. The Administrator may by rule adopt exemptions from registration requirement if exemptions are: Consistent with public interest and proposes fairly intended by the policy and provisions of the act. Administrators may revoke or deny certain exemptions without giving: Prior notice to those who were previously exempt and to other regulators. Administrators may cooperate with who to achieve maximum enforcement of policy and uniformity of all fillings. Other administrators and/or SEC Administrators may prescribe the form and content of financial statements. Statements must be prepared how? In accordance to accepted accounting principles. All rules and forms of the administrator shall be published and be amended when? All required, kept records may be examined by the administrator when? How are all administrative hearings held? Public unless determined otherwise. Orders may be appealed in court within: Administrators may prohibit an IA from taking: Custody of a clients funds/securities. The burden of proving a rule exemption/exception is on: In any disciplinary proceeding where denial/suspension/revocation of registration occurs, Admin is required to provide:
Procedures during administrative investigations and disciplinary proceedings: The administrator may not institute a suspension or revocation proceeding:
The administrator may require filing of prospectus communications addressed to: Prospective investors, clients, or potential clients of an IA, unless the security/transaction is exempted. Ex: federal covered security For websites, IAs and B/D must keep what records? Current site records and past revisions. The administrator has no authority to require the filing of advertising of: A federal covered security by the issuer. Unit Investment Trusts must file: Advertising and Sales Literature. All records must be preserved for a period determined by: State Admin or Federal law (5 years for IAs) The admin has some discretion with record keeping requirements but must: Remain within certain limitations of the Securities Exchange Act of 1934 If an IA is registered with the SEC, Admin does not have control over:
The book/records the IA firm is required to maintain. Books/Records of B/D that must be maintained:
A B/D would not have to keep records of persons receiving: Promotional or sales literature. A B/D or IA may store records electronically provided certain criteria are met, including stored records:
A record of the daily activities of each branch of a B/D. B/Ds must retain "blotters" and other records of original entry for how long? IAs are required to keep records of communications, including: emails, involving advisory activity sent to clients. IAs are NOT required to keep records of what kinds of emails? ALL personal email of their employees and ALL emails sent to/from the firm not related to advisory activities. In addition to maintenance of certain records, Administrators can require filing of:
Due to difference in business function, B/Ds and IA firms can and normally do have different ________ requirements under both _____ and __________. Record-keeping; SEC; Administrative regulations Under the Uniform Securities Act, an Administrator of a state may require the filing of communications addressed or intended for distribution to prospective investors for all of the following EXCEPT? Answer: CUnder the Uniform Securities Act, the Administrator may, by rule or order, require the filing of any prospectus, pamphlet, circular, form letter, advertisement, or other communication addressed or intended for distribution to prospective investors, including clients or prospective clients of an investment advisor, UNLESS THE SECURITY OR TRANSACTION IS EXEMPTED. Which of the following is excluded from the anti-fraud provisions of the Uniform Securities Act? Answer: DThe anti-fraud provisions of the Uniform Securities Act apply to all securities and transactions in securities, regardless of exemption or federal coverage. Which of the following would be considered approved acts of an agent? Answer: DAll choices offered represent acts which would be considered violations of the Uniform Securities Act. Under the provisions of the Uniform Securities Act, which of the following is NOT required to be in writing in an advisory contract? Answer: AThe names and titles of all the principals of the advisory firm would not be needed in an advisory contact, but the information in 'B', 'C', and 'D' would be required. The Administrator is empowered
to revoke the registration of an investment advisor if: Answer: DAn Administrator has the power to revoke an Investment Advisor's registration if it is deemed in the best interest of the public. All three items listed are specifically listed as reasons why a registration could be revoked according to the Uniform Securities Act. An Agent of a Broker-dealer has sold a common stock to a client by use of false information. The Agent did not know that such information was
false when it was disseminated to the client. Based on these circumstances which of the following would be correct? Answer: BUnder Section 410 of the Uniform Securities Act, a person selling securities has a defense to liability if the person can sustain the burden of proof that they did not know of the untrue statement and could not have known of the untrue statement in the exercise of reasonable care. Frank works at ABC Advisory and Broker/Dealer Services. The firm provides investment advice as well as broker/dealer services to clients. Frank recommends the purchase of 200 shares of XYZ common stock to one of his advisory clients. The client also uses ABC for their broker/dealer services. ABC has an inventory of XYZ, so the sale is facilitated in a principal capacity. Frank gets a mark-up on the sale in addition to his
advisory fees for assets under management. Which of the following is TRUE of this scenario according to the Uniform Securities Act? Answer: CIf a client will be charged for advice as well as commissions or a mark-up/mark-down, this must be fully disclosed to the client. As well, the client must be informed via disclosure of scenarios where the firm is acting in a principal capacity (selling into/out of their own account). Here, Frank can perform the trade as listed if proper disclosure is given related to charging both a fee and a mark-up, as well as the firm acting in a principal capacity. If such disclosures are not offered, Frank would be acting in violation of the Uniform Securities Act and could be civilly liable.
Violations of the Uniform Securities Act may result in Answer: DAccording to the Uniform Securities Act, violations may result in but are not limited to: having a receiver appointed over an advisers' assets, limitations on business activities, and/or a $5000.00 fine. According to Uniform Securities Act Regulations, which of the following statements are correct regarding “advertising”? Answer: AAccording to the Uniform Securities Act, websites are considered to be a form of advertising. Because of this, copies of the “advertising” must be maintained. For this reason, records related to the current version of a website, as well as previous versions and revisions to the site, must be maintained by the firm. Such records are permitted to be in electronic form, but must adhere to certain rules. The records may not be in a form that can be altered. As well, the records must be readily accessible, must be in a format that can be copied as needed, and must be stored in two separate locations. Which of the following are unlawful? Answer: DAll choices offered would be considered unlawful practices under the Uniform Securities Act. According to the Uniform Securities Act, which of the following are unlawful with an offer, sale, or purchase of a security?
Answer: DAll choices are correct with regard to unlawful acts in connection with an offer, offer for sale, or purchase of a security. If an investment adviser has a principal place of business in a given state, that state's Administrator may impose what requirements according to the Uniform Securities Act? Answer: DAdministrators may require that the IA file all of the above items as well as maintain certain records. When conducting an investigation pursuant to Uniform Securities Act regulations, the Administrator of
a state has authority to perform which of the following? Answer: DThe Uniform Securities Act give the Administrator the authority to perform all of the functions listed above including the ability to subpoena witnesses, collect evidence, and administer oaths. Under the Uniform Securities Act, which of the following is NOT required to be in writing in an advisory contract? Answer: AAdvisory contracts are not required to list the names and titles of all principals on the advisory firm. However, the contract must include in writing the following information: that the advisor will not be compensated on the basis of a share of capital gains or capital appreciation of funds, that no assignment of the contract may be made by the advisor without the consent of the client and that if the advisory company is a partnership it shall notify the client of any change in the membership of the partnership. The antifraud provisions of the Uniform
Securities Act apply to which of the circumstances below: Answer: DThe antifraud provisions of the Uniform Securities Act apply to all offers and sales of securities, whether the person selling them is exempt from the Act or not. If an intentional omission of a fact is made in a securities transaction, it would constitute fraud: Answer: BFraud would have occurred if the information was needed in making a decision as to whether or not the investment was appropriate for the client. It is a violation of the Act for an agent to do which of the
following? Answer: DAll choices represent activities which would be a violation of Uniform Securities Act. Which of the following are true regarding investigations conducted by the Administrator under the Uniform Securities Act? Answer: CChoices II and III are correct. Choice I is incorrect because information regarding violations may be made public by the administrator. All of the following would NOT be cause for civil liability except? Answer: DAll choices offered represent things that an IA firm is supposed to do except choice settling the lawsuit after it has been filed. This choice is incorrect because such an offer is required to be made PRIOR to the customer filing the lawsuit. Which of the following billing methods would be permissible for an IA under the Uniform Securities Act? Answer: CUnder the Uniform Securities Act, investment advisors are permitted to collect fees for their services. These fees must be fixed or must be based on the percentage of assets under management. Fees cannot be tied to a certain percentage of profits, which would constitute a performance-based fee. In this question, the set fee for start-up, the set monthly fee for recommendations, and the 1.5% of assets under management would all be acceptable. The 25% of profits would not be acceptable and would constitute a performance-based fee. Anyone who violates any provision of the Uniform Securities Act may be subject to which of the following? Answer: BII is incorrect because the fine under the Uniform Securities Act is $5,000. I and III are correct as stated. Frank is not registered in any capacity under the Uniform Securities Act. Is it possible for Frank to violate the rules of the Uniform
Securities Act, despite his not being registered? Answer: AAn individual does not need to be registered in any capacity in order to violate the provisions of the Uniform Securities Act. Violations can come from many different areas of the Act. Those listed are just a small sample, but include acting in a capacity which requires registration without properly registering, making untrue statements of material fact about securities, violation of anti-fraud provisions, and violation of insider trading laws. Frank can be prosecuted for any of these violations, despite the fact that he is not registered under the Uniform Securities Act. According to the Uniform Securities Act, whenever it appears that someone has violated the act, the administrator may: Answer: DThe Administrator of a state has the power to do any or all three of the choices offered if a violation of the Uniform Securities Act has occurred in their state. Which of the following actions, according to the USA, must be taken
by a State's Administrator prior to the revocation of an investment adviser's registration? Answer: C The administrator may revoke an IA's registration but must provide appropriate notice, opportunity for a hearing, and written facts and conclusions by law. Under the Uniform Securities Act, investment advisory fees may be based on a percentage of all of the following EXCEPT: Answer: D As a general rule, performance-based fees are prohibited. Therefore, fees based on appreciation or capital gains are prohibited. Under which of the following circumstances may an investment adviser (IA) act as a principal and sell a security to a client according to the Uniform
Securities Act? Answer: D When an Investment Advisor Acts as principal, it must be disclosed to the client in writing before completion of the transaction. Which of the following situations could place an investment adviser in a position where the IA could be held liable to a client in a civil case? Answer: C A suitable investment may lose money without any fault on the part of the IA. The other two examples are blatant violations of the USA. The Uniform Securities Act provides that which
of the following statements is/are correct with regard to post registration provisions for registered IA's whose principal place of business is in a given state? Answer: C All records required to be kept may be examined by the Administrator at any time within or outside of the state. IAs do not schedule their own annual examinations! Does
the fact that an Investment Advisor is registered in a state mean that the Investment Advisor is qualified? Answer: C Registration as an IA, B/D. or Agent does NOT mean that the firm or person is approved or qualified according to the Uniform Securities Act. According to the Uniform Securities Act, all the following must be included in a written advisory contract except: Answer: B All choices except "B" are true statements regarding an investment advisory contract. "B" is incorrect because investment advisory contracts would not include registration information. Which of the following statements is true with regard to an Administrator's authority under the Uniform Securities Act to examine the books and records of a
registrant? Answer: B The state's administration is allowed to examine books and records at anytime inside or outside of the state. Which of the following is FALSE when discussing Administrative proceedings according to Uniform Securities Act regulations? B. Orders by an Administrator may be appealed in court within 60 days after the order is issued, therefore choice "B" is not true. All other choices represent true statements. Under the Uniform Securities Act (USA), an agent of a broker-dealer who violates the USA may be
subject to which of the following consequences? D.An agent of a broker-dealer could be subject to "All" choices offered if violations occur. The burden of proving an exemption or exception to a definition under the Uniform Securities Act is placed on: A. In any proceeding under the Uniform Securities Act, the burden of proving an exemption or an exception from a definition is placed on the person claiming it. According to the USA, an agent has willfully violated the antifraud provisions of the USA if he or she intentionally performs which of the following acts? D. A "willful" act is an intentional, deliberate act. All of these acts are fraudulent and/or deceptive practices. The regulations for the storage of e-mail communications for investment advisors under the Uniform Securities Act requires: B. The rules require the maintenance of only communications relating to investment advice, receipt, or disbursement of securities, funds, and records of securities trades. Which of the following would be grounds for denial, revocation, or suspension of the registration of a broker-dealer? A. Minor rule infractions are not grounds for denial, revocation, or suspension of registration. According to the Uniform Securities Act, every investment advisor shall make and keep such accounts, correspondence, memoranda, papers, books, and other records: C. In the Uniform Securities Act, Section 203, records are to be made and kept as prescribed by the Administrator of the state where the IA's principal place of business is located, except for where federal law takes precedence. Bonds issued by the US Government or municipalities within the US are exempt from registration. Concerning these securities, all of the following would be TRUE, EXCEPT: D. The Administrator has the ability to revoke certain exemptions by rule or order. However, the Administrator does NOT have the ability to deny or revoke exemptions related to US Government securities and Municipal securities, which are exempt. The Administrator of a state receives information from a reliable source pertaining to questionable activities on the part of a federal covered adviser. It seems that instead of taking the necessary actions when receiving customer complaints, the adviser burns the documents in his office fire place, sometimes in front of other
employees. With his authority, the Administrator can A. Under the USA, an Administrator has the authority and power to conduct investigations and issue stop orders . Although a federal covered adviser is exempt from the registration and record-keeping requirements of the Act, they are not exempt from the anti-fraud provisions of the Act. The Administrator may seek an injunction via the judicial system (court system), but the Administrator cannot issue an injunction directly. Which of the following statements are true with regards to the responsibilities of a registered investment adviser under the USA? C. All of the statements are true with regard to the responsibilities of an Investment Adviser except II. II is not correct because an annual examination of books and records would have to unannounced and done by an independent public accountant. Which of the following must be disclosed in writing to clients prior to an IA giving financial advice to a
client? B. Disclosure related to charging fees as well as commissions must be made in the advisory contract prior to giving a client financial advice. Each of the other items listed does not need to be disclosed or does not need to be disclosed prior to giving financial advice. According to the USA, it is acceptable for an IA's compensation to be based on which of the following? D. Performance fees are generally prohibited under the USA. You work for XYZ Advisors which is an investment advisory firm. The firm is
registered in Maine, New Hampshire, and Vermont. Printed on the firm's brochures, business cards, and letterhead is the following statement: "XYZ Advisors is a fee-only advisor. Registration procedures, review, and approval has been performed in the state of Maine." Which of the following is the BEST description as to why this statement is unacceptable? B. In no way is it acceptable for the firm to discuss completion of the registration procedures as "approval" by the state in which the firm is registered. The firm is not required to list all states in which it is registered on such forms. Disclosure as a fee-only advisor is acceptable if that is the case and other forms of compensation need not be disclosed or charged if the firm does not use other forms of compensation. What consequences might befall a broker-dealer firm that violates the provisions of the Uniform Securities Act? I. Criminal prosecution
II. Civil law suits III. Registration suspension, denial, or revocation IV. Confiscation and repayment of fees and/or commissions resulting from such violations. D. When a violation of the Uniform Securities Act has taken place, the broker-dealer may be subject to criminal and civil penalties. The broker-dealer may also have their registration suspended or revoked. If the broker-dealer has received fees and/or commissions from unethical practices that violate the Act, these fees and/or commissions can be confiscated and repaid to those who paid them (disgorged). In the event that an apparent violation of the Uniform Securities Act has taken place, which of the following is NOT included in the list of possible actions that
may be taken by the Administrator? A. An Administrator is not permitted to revoke a registration without providing appropriate prior notice, the opportunity for a hearing, and written findings, facts, and conclusions related to the alleged violation. You
are a new agent at Broker/Dealer XYZ. You have completed the registration process with State A. Which of the following statements are you permitted to say to customers and prospective customers? C. Statements implying approval, verification, or recommendation may NOT be made. The only acceptable statement in this scenario would be that of the agent being authorized to do business in the State according to registration procedures and the State Administrator. All of the other statements imply too much. According to the criminal penalties of the Uniform Securities Act, which two of the following apply if a person knowingly makes a misleading filing with the administrator? That person may be: C. Under the Uniform Securities Act, penalties are limited to a fine of $5000, imprisonment of 3 years, or a combination of both. Under the Uniform Securities Act, every investment advisory contract must be in writing and must include D. Assignment of the contract is permitted with the written consent of the client. The IA may not limit its liability or as a general rule share in the capital gains of the accounts of clients.
Which of the following statements that relate to Investment Advisers (IA's) is FALSE according to the Uniform Securities Act? B. Nobody is exempt from state antifraud provisions! Stella has made a business of advising her clients as to the value of securities that are listed on the New York Stock Exchange. She does not perform any transactions for her clients. Even though she does not effect transactions for her clients, she must still comply with which of the following provisions of the Uniform Securities Act? I. The antifraud provisions II. Provisions related to broker-dealer registration III. Provisions related to investment adviser registration [A] I only [B] III only [C] I and II [D] I and III D. An investment advisor (IA) that only gives advice about listed securities and does not execute or effect any transactions would have to be registered as an investment adviser (IA) but would not have to be registered as a broker-dealer. An IA may be liable for civil damages to a client if: D. Failure to disclose a material fact is fraud. An IA is liable for the negligence of its employees. Under the Uniform Securities Act, an Administrator may inspect required books and records: A. State Administrators can examine books and records of a registrant registered in their state at any time within or outside of the state without prior notification. What provisions, set forth by the Uniform Securities Act, apply to both federal covered advisers and investment advisers of the same state? D. All firms doing business in a state are subject to the anti-fraud provisions of the Uniform Securities Act. Which of the following actions could result in civil liability according to the Uniform Securities Act? D. All choices are correct with regard to civil liabilities according the Uniform Securities Act. An Administrator of a state may deny an application by a broker-dealer for registration, according to the Uniform Securities Act, if the broker-dealer applicant B. Each standing alone, answers A, C, and D are not sufficient grounds for Administrators to deny applications. However, being suspended by another stock exchange is sufficient grounds for an Administrator to deny registration. When an agent of a broker/dealer sells securities the USA states: C. When an agent of a broker/dealer sells securities the securities must be registered, exempt, or is a federal-covered security. According to the Uniform Securities Act, broker-dealers must renew their registration how often? Registration must be renewed annually. Coordination is used to register securities with a state and an agent is talking to a prospective buyer about these securities. The Uniform Securities Act permits which of the following statements regarding this situation? B. Administrators, SROs, and government agencies such as the SEC will NEVER "pass on", "endorse", "stand by", or "guarantee" the viability of a company or security. It is also unacceptable for an agent to state that the Administrator has found that all statements and information contained in a registration statement is "true" or is "accurate" or for the agent to state that a registration statement would not have been approved if there were any inaccuracies.
Renewal registration fees are NOT required of which of the following registered applicants? A. A broker/dealer filing for a successor would apply the unused portion of the existing registration to the new (successor) firm. A broker/dealer is registered in all 50 states but only has offices located in State A. The Administrator in State B has notified the BD that he is going to audit the BD's books and records. Does the Administrator in State B have authority to audit the books? A. If a BD is doing business in a state and is registered in the state, the Administrator of that state may examine the books and records at any time in or out of the state, even if the broker/dealer does not have an office in that state. Under the Uniform Securities Act, investment adviser's (IA's)
applications for registration may be denied by a state Administrator for any of the following reasons EXCEPT: B. Felons are not allowed to be IA's. Also, the Administrator may deny approval if a misdemeanor has been committed within the last 10 years that is related to the securities business. All of the other answers provide reasonable grounds for denial by the state Administrator. According to the Uniform Securities Act, every investment advisor shall make and keep such accounts, correspondence, memoranda, papers, books, and
other records: C. In the Uniform Securities Act, Section 203, records are to be made and kept as prescribed by the Administrator of the state where the IA's principal place of business is located, except for where federal law takes precedence. Bonds issued by the US Government or municipalities within the US are exempt from registration. Concerning these securities, all of the following would be TRUE, EXCEPT: D. The Administrator has the ability to revoke certain exemptions by rule or order. However, the Administrator does NOT have the ability to deny or revoke exemptions related to US Government securities and Municipal securities, which are exempt. An Administrator performs a preliminary investigation of an investment advisor and finds that it appears a violation of the Uniform Securities Act has taken place. The Administrator immediately revokes the investment advisory firm’s
registration. In this scenario, the Administrator: C. The provisions of the Uniform Securities Act require that an Administrator may not enter an order to revoke a registration without 1) providing appropriate prior notice to the registrant, 2) provide an opportunity for a hearing, and 3) provide written findings of fact and conclusions of law. Since the Administrator immediately revoked the investment advisory firm’s registration, the Administrator has not followed the provisions of the Uniform Securities Act and the Administrator has acted inappropriately, regardless of whether the investment advisory firm was in violation of the Uniform Securities Act or not. If the
Administrator of a State believes that a violation is about to take place or that violations are taking place or on an ongoing basis, what action is permitted under the Uniform Securities Act? B. If the Administrator believe that a person is about to violate or has violated the USA, the Administrator can issue a cease and desist order for the illegal activity. The administrator cannot arrest, serve search warrants (police), and the court system would have to handle prosecutions with jury trials. |
Which of the following securities offerings is in compliance with Regulation s Quizlet
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