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NEW QUESTION # 29
Today's edition of the Wall Street Journal carried a front page story regarding a federal lawsuit that has
been filed against a software manufacturer for monopolistic practices. The CFO of the company called his
broker today and sold some of the shares he owns in the company. Which of the following statements are
true?
I. The CFO is guilty of illegal insider trading.
II. If the agent who effected the transaction for the CFO knew he was CFO of the software company, the
agent is guilty of illegal insider trading.
III. The broker-dealer for whom the agent works may have its license suspended or revoked if its agent
has knowingly executed this illegal insider trade for not having supervised the agent properly.
- A. None of the statements is true.
- B. I only
- C. I and II only
- D. I, II, and III
Answer: A
Explanation:
If the CFO called his broker and sold some of the shares he owns today, none of the
statements is true. Insider trading is only illegal if the insider trades on information that the public does not
yet have. In this case, the information has already been made publicly available, so no one has done
anything illegal. Insiders to the company are allowed to buy and sell shares of their firm's stock as long as
they are not acting on private information.
NEW QUESTION # 30
You have recently discovered that a security you purchased has not been registered with the state, nor is it exempt from registration. You can file a civil claim against the seller as long as you do so within
- A. three years from discovery or five years from the event, whichever comes first.
- B. five years.
- C. two years from discovery or three years from the event, whichever comes first.
- D. one year from discovery.
Answer: C
Explanation:
Explanation
If you discover that a security you purchased has not been registered with the state and was sold unlawfully, you can file a civil claim against the seller as long as you do so within two years from discovery or three years from the event, whichever comes first, under the guidelines of the Uniform Securities Act. Therefore, if you know about an unlawful sale for more than two years or if the sale took place more than three years ago, you cannot sue. The statute of limitations has expired.
NEW QUESTION # 31
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 is required to call all of her clients at QuikDeals to inform them she is no longer employed there.
- B. Maddie has sixty days to find a job with another broker-dealer, or she will need to file a new registration application.
- C. 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.
- D. Maddie has thirty days to find a job with another broker-dealer, or she will need to file a new registration application.
Answer: C
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 # 32
Nat Smart was employed as an investment adviser representative and sold many of his clients on a
municipal bond fund of which he was fond, telling his clients that the returns earned on it were completely
free from federal taxation. Unfortunately, he had some unhappy clients when, at the end of the year, they
discovered that they had to pay federal tax on the capital gains earned by the fund when it sold some of
the bonds it held. Nat was as surprised as they were. Based on these facts, which of the following
statements is necessarily true?
I. Because Nat was as surprised as they were, he is guiltless.
II. Nat is subject to civil liability payments.
III. Nat will be subject to the criminal penalties for fraud and may spend time in prison.
- A. I only
- B. III only
- C. II and III only
- D. II only
Answer: D
Explanation:
Only Selection II is an accurate statement. In telling his clients that the returns earned on a
municipal bond fund were totally tax-free, Nat misled the clients, whether intentionally or not. This
constitutes fraud, and Nat is, at a minimum subject to civil liability payments, so this is "necessarily" true.
Whether or not Nat will be subject to criminal penalties for fraud and spend time in prison depends on his
ability to prove that he had no knowledge that he was misleading his clients.
NEW QUESTION # 33
When a customer files a complaint with a broker-dealer,
I. the broker-dealer must submit the complaint to the firm's compliance department.
II. the broker-dealer must provide a prompt written response to the complainant.
III. the broker-dealer must temporarily suspend the activities of any agent named in the complaint.
- A. I and II only
- B. II and III only
- C. I, II and III
- D. I and III only
Answer: A
Explanation:
Explanation
Only Selections I and II are true. When a customer files a complaint with a broker-dealer, the broker-dealer is required to submit the complaint to the firm's compliance department, if any, and to provide the complainant with a prompt written response. It is not necessary to suspend the activities of an agent named in the complaint.
NEW QUESTION # 34
Under the Uniform Securities Act, which of the following does not need to be included when filing to register a security issue with the state?
- A. a copy of the firm's articles of incorporation and bylaws, or the equivalent
- B. a copy of any indenture applying to the security being registered
- C. copies of the underwriter agreements
- D. All of the above documents must be included when filing to register a security with the state.
Answer: D
Explanation:
Explanation
The Uniform Securities Act specifies that the initial registration statement should be accompanied by all of the documents listed in the first three selections-a copy of the firm's articles of incorporation and bylaws or their equivalent; copies of any underwriter agreements; and a copy of any indenture that applies to the security being registered. Moreover, these are only some of the documents that need to be included.
NEW QUESTION # 35
Once a person has filed an application with the Administrator, and in doing so has truthfully disclosed every material fact, how long does the Administrator have after the effective date of the registration to commence a proceeding to deny, suspend, or revoke that person's license based on those facts?
- A. one year.
- B. 90 days.
- C. 60 days.
- D. 30 days.
Answer: B
Explanation:
Explanation
If a person has appropriately and truthfully disclosed every material fact on its application for registration, the Administrator has 90 days after the registration becomes effective to commence a proceeding to deny, suspend, or revoke the license. If the Administrator has known about the fact for longer than this, he may not begin a proceeding against that person according to the Uniform Securities Act.
NEW QUESTION # 36
Alice Wonder called her broker on Tuesday, August 10th, with a market order to buy 10 calls on the stock
of Abbott Laboratories. Under normal conditions, Alice will have to pay for the calls on
- A. Tuesday, August 10th.
- B. Friday, August 13th.
- C. Wednesday, August 11th.
- D. Monday, August 16th.
Answer: C
Explanation:
If Alice places a market order to buy call options on Tuesday, August 10th, she will have to
pay for them on Wednesday, August 11th, the next business day. Options and U.S. government bonds
settle on the day after the trade date, or T + 1.
NEW QUESTION # 37
Ms. Muffet is employed by Spyder Broker-Dealers. Her job duties include providing price quotes and
executing purchases and sales for the firm's clients. She is paid a salary plus commission. Ms. Muffet is
- A. an investment adviser.
- B. an investment adviser representative.
- C. an agent.
- D. a broker-dealer.
Answer: C
Explanation:
As an employee of Spyder Broker-Dealers who executes trades for clients, Ms. Muffet is an
agent who works for the broker-dealer Spyder. She does not provide investment advice for a fee, so she
is neither an investment adviser nor an investment adviser representative.
NEW QUESTION # 38
A broker-dealer will be found guilty of churning an account if the account has a turnover ratio of
- A. five.
- B. eight.
- C. There is no specified turnover ratio assigned to the prohibited practice of churning.
- D. four.
Answer: C
Explanation:
Explanation
There is no specified turnover ratio assigned to the prohibited practice of churning since some investors are simply more frequent traders than others.
NEW QUESTION # 39
You are an investment adviser to Mr. Crochety, an elderly man who lives solely on his social security
income although he managed to accumulate an investment portfolio worth about $100,000 over the years.
Mr. Crochety recently got his hands on a business publication and read about the tax-free interest paid by
municipal bonds. He calls you and instructs you to sell his other investments and invest all his money in a
municipal bond portfolio, so that "the government doesn't get any more of my hard-earned money." You
tell Mr. Crochety that you don't believe this is a wise move because he's in such a low tax bracket that
municipal bonds are not a good investment for him, but he is insistent. Based on these facts, you should
- A. call Mr. Crochety's relatives and suggest they have him examined for mental instability.
- B. have Mr. Crochety sign a statement of investment policy that indicates that this transaction is being
executed on the client's instructions and that you have advised the client against it. - C. require Mr. Crochety to sign an affidavit of liability waiver, indicating that you will not be held
responsible for any adverse consequences of this decision. - D. ignore Mr. Crochety's instruction since it is not in his best interest.
Answer: B
Explanation:
Given that you have advised Mr. Crochety that this is not a wise move and he still insists on it,
you should protect yourself by getting it in writing. In no case, however, can you require a client to sign an
affidavit of liability waver, nor can you refuse to follow his adamant instructions.
NEW QUESTION # 40
In accordance with the National Securities Markets Improvement Act of 1996, which of the following is a federal covered adviser and, therefore, exempt from registering with the state Administrator?
I. An adviser who does business in 26 states.
II. An adviser who manages the portfolio of a mutual fund that is registered with the SEC.
III. An adviser with $35 million in assets under management
- A. II and III only
- B. I and II only
- C. All of the selections meet the qualifications of a federal covered adviser.
- D. I and III only
Answer: A
Explanation:
Explanation
The advisers described in Selections II and III are federal covered advisers and, therefore, exempt from registering with the state Administrator. An adviser who advises a registered investment company, as in Selection II, and an adviser with over $30 million in assets under management, as in Selection III are exempt.
In order to be exempt from registration, the adviser in Selection I would have to be doing business in more than 30 states.
NEW QUESTION # 41
Which of the following is not a prohibited practice for a broker-dealer?
- A. executing a trade for an account holder based on instructions from the account holder's spouse
- B. recommending a security to a new client without first ascertaining that client's level of risk tolerance
- C. requiring that a client who is engaged in margin transactions leave the securities with the broker-dealer
in "street name" - D. waiting 36 hours before mailing a check after receiving a request for a cash withdrawal from a client if
the client has that much cash available in his account
Answer: C
Explanation:
It is not prohibited for a broker-dealer to require that a client who is engaging in margin
transactions to leave the securities with the broker in "street name." This is the normal business practice.
A margin transaction means that the client is borrowing part of the funds he's investing, and the securities
are serving as collateral for the loan. It is illegal to delay sending a check upon receiving a request for a
cash withdrawal, assuming the client has the cash available in his account; to recommend a security to a
client without knowing anything about him, including his tolerance for risk; and to execute a trade on
instructions from anyone other than the account holder unless that party has at least limited power of
attorney.
NEW QUESTION # 42
Under the Uniform Securities Act (USA), which of the following statements would be disallowed?
- A. An insurance company guarantees a fixed payment of $300 a month for life on an annuity it is selling.
- B. Neither the statements in Selections B or C would be allowed under the guidelines of the Uniform
Securities Act. - C. A sales representative of GetErDone Broker-Dealers guarantees that a client can expect an average
annual rate of return of 2% on a mutual fund investment the sales representative is selling, pointing to the
fact that the fund has returned an average annual rate of return of 6% over the past ten years. - D. The government of the U.S. guarantees a 3% interest rate, to be paid semiannually, on a new 5-year
Treasury note.
Answer: C
Explanation:
A sales representative (aka an agent) of a broker-dealer may not make any guarantees.
Only three entities are allowed to make guarantees under the Act: Parent companies, which may
guarantee the securities of one of its subsidiaries, the U.S. government, and insurance companies.
NEW QUESTION # 43
Which of the following would a firm not be expected to provide to the Administrator when registering an issue of securities with the state?
- A. the agreement among the underwriters themselves.
- B. The firm will be expected to provide all of the above to the Administrator when registering an issue of securities with the state.
- C. the agreement between the issuing firm and the underwriters.
- D. all sales and advertising materials that will be used in conjunction with the offering.
Answer: B
Explanation:
Explanation
The firm will be expected to provide all of the above-sales and advertising materials to be used in the offering, the agreement between the issuing firm and its underwriters, and the agreement among the underwriters themselves.
NEW QUESTION # 44
A broker-dealer of commodity futures contracts has been profiting by trading for its own account either
before or after executing a client's trade on the same commodity, depending on which will be most
advantageous. Under the Uniform Securities Act, the broker-dealer is guilty of
- A. unauthorized transactions.
- B. fraud.
- C. nothing. The Uniform Securities Act (USA) deals only with securities, and a commodity futures contract
is not a security. - D. churning.
Answer: C
Explanation:
A broker-dealer of commodity futures contracts is guilty of nothing under the Uniform
Securities Act since a commodity futures contract is not a security as defined by the USA. The
broker-dealer may, however, find himself in trouble with the Commodity Futures Trading Commission,
which is the regulatory agency of the futures market.
NEW QUESTION # 45
A broker-dealer is required to keep his records for how long?
- A. broker-dealer is required to keep his records for as long as he is registered in the state.
- B. at least three years
- C. at least seven years
- D. at least five years
Answer: B
Explanation:
Explanation
A broker dealer is required to keep his records at least three years.
NEW QUESTION # 46
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