Which of the following entities must sign a "consent to service of process," thereby allowing the Administrator to receive legal documents that are meant to be served to the entity in place of that entity?
I. agents -
II. investment advisers -
III. investment adviser representatives
IV. broker-dealers -
Answer : D
Explanation: Agents, investment advisers, investment adviser representatives, and broker-dealers must all sign a consent to service of process, allowing the
Administrator to receive legal documents in their stead. The consent to service of process must accompany the application for registration with the state or the documentation provided with a notice filing when permitted.
Which of the following would fall under the definition of "agent," as defined by the Uniform Securities Act (USA)?
Answer : D
Explanation: None of the selections describe an "agent," as defined by the Uniform Securities Act (USA.)
Joe is not executing trades for clients of the broker-dealer, and clerical assistants are not classified as agents. Agents must be individuals, so a firm like Freedom broker-dealers would not be considered an agent. A bank is not an individual, and banks are even excluded from the definition of a broker-dealer.
The 2003 NASAA Model Rule requires that investment advisers that are not federal covered maintain their records for at least
Answer : B
Explanation: Investment advisers are required to maintain their records for at least five years.
Individual states are prohibited from requiring a broker-dealer or investment adviser to file financial reports more frequently than:
Answer : C
Explanation: Individual states are prohibited from requiring a broker-dealer or investment adviser to file financial reports more frequently than four times a year.
Under the Securities and Exchange Act of 1934, individual states are prohibited from imposing more stringent requirements than those already required by the
SEC, and the SEC requires quarterly reporting. Therefore, a state may not require that a broker-dealer or investment adviser file monthly reports with it.
A-2-Z Associates advertises itself as a full service brokerage firm that will buy and sell securities for its clients, as well as provide investment advice to them. Its brochure provides a variety of plans to which a client can subscribe. The basic plan is the cheapest and allows the client a maximum number of trades per month for a specified fee. Another, slightly more expensive, plan provides the client with the same maximum number of trades per month, but the client also receives a personalized quarterly review of his portfolio along with advice for restructuring his portfolio based on such factors as current market conditions and specific industry or company information. The most expensive plan is one in which the client is assigned to an individual portfolio manager, who will take total responsibility for the asset allocation of the client"™s portfolio and will provide the client with monthly reports. Based on the services A-2-Z provides, it must register with the state as:
Answer : C
Explanation: Based on the services A-2-Z provides, it must register with the state as both a broker-dealer and an investment adviser. It is receiving compensation as a broker-dealer for executing purchases and sales of securities for its clients under its basic plan, but it is receiving additional compensation for acting as an investment adviser under the two higher level plans.
MoeMoney Investment Advisers, LLC is registered in the state of Texas, and its three offices are all located in the greater Dallas-Fort Worth area. Five of its clients-all individuals-have relocated to Colorado and all have indicated a desire to retain the services of MoeMoney. In order for this to be possible,
Answer : D
Explanation: In order for MoeMoney to continue servicing its five individual clients who have relocated to Colorado, neither MoeMoney nor its clients need to do anything. The National Securities Markets Improvement Act of 1996 (NSMIA) established a "deminimis" exemption for investment advisers if they have no office in a state and do business with "no more than five non-institutional clients" during a one-year time frame.
Sam Shade had his agent"™s license revoked by the state of Washington for repeatedly making misleading claims about various investment to investors. He had had it with all the rain anyway and decided to move to the sunshine state of Florida. His brother-in-law was a computer whiz who made money on the side (more than his day job provided, in fact) by supplying illegal immigrants with official-looking documentation, including social security numbers. Sam Shade became Ian
Creed in a few clicks of the mouse. As Ian Creed, Sam was hired by Sunny Investment Advisers, an investment adviser firm located in the Florida Keys, in a clerical role. As such, Sam/Ian had access to the confidential information of the firm"™s clients, which he and his brother-in-law utilized for the purpose of identity theft. Under the Uniform Securities Act guidelines, when Sam and his brother-in-law are caught in their illegal activities,
Answer : A
Explanation: When Sam and his brother-in-law are caught, Sunny Investment Advisers will not be held liable if it can prove that there was no way it could have or should have known of Sam Shade/Ian Creed"™s license revocation. The drafters of the Uniform Securities Act were cognizant of the fact that employees can be remarkably deceptive when applying for a position, and because of this the Act indicates that the investment adviser must either "have known or should have known" of the Administrator"™s adverse decision against the employee in order to itself be deemed liable.
Which of the following statements regarding an investment adviser representative who has an office in the state is true?
Answer : B
Explanation: Regardless of whether the investment adviser is register with the SEC or is itself registered with the state, all of its investment adviser representatives
(IARs) are required to register with the state if they operate a place of business in the state.
A variable annuity is:
Answer : D
Explanation: A variable annuity is defined as a security, but is exempt from state registration in the opinion of the North American Securities Administrators
Association (NASAA.) The Supreme Court of the U.S. passed a ruling that deemed a variable annuity to be a security. The National Securities Market
Improvement Act of 1996 (NSMIA) established variable annuities to be federal covered securities, however, since they are, for all intents and purposes, mutual funds. Federal covered securities are exempt from state registration.
Which of the following is not a security, as defined by the Uniform Securities Act?
I. an option contract -
II. a futures contract on gold -
III. a 401K plan -
IV. a variable annuity -
Answer : C
Explanation: Only Selections II and III are not securities. Neither retirement plans nor commodity futures contracts are deemed to be securities by the Uniform
Securities Act. A 401K plan may be invested in securities, but it is not a security itself. A gold futures contract is a contract between two parties for the delivery of the underlying asset, gold. The profits (or losses) are not dependent on the performance of an outside party, which is a critical element, based on a 1946 U.S.
Supreme Court decision, which defines a security as "an investment of money. . . with profits to come solely from the efforts of others."
An arrangement wherein a terminally ill person sells a second party his life insurance policy at a discount from its face value, giving the buyer the right to the policy"™s face value when the seller dies is called a:
Answer : B
Explanation: A viatical settlement is an arrangement under which a terminally ill person sells a second party his life insurance policy at a discount from its face value. When the terminally ill person dies, the buyer of the policy receives its face value. Some states consider viatical settlements to be securities, and they have come under the scrutiny of the NASAA since there is a significant potential for fraud in the writing of these contracts.
Mr. Bigwig, CEO of HiGrowth Corporation, meets with the president of BigFee Investment Bankers and arranges for BigFee to underwrite an Initial Public Offering
(IPO) for the firm.
When the IPO comes to market, GetErDone Broker-Dealers is part of the selling group, which handles the sale of the stock to the public. In this scenario, which party is the issuer?
Answer : A
Explanation: HiGrowth Corporation is the issuer in this instance. Its stock will be sold, and HiGrowth will receive the proceeds from the sale-less BigFee"™s underwriting spread. Mr. Bigwig is merely HiGrowth"™s representative in this instance.
Assuming the security is not registered under the Uniform Securities Act, which of the following would not be exempt from state registration?
Answer : C
Explanation: A stock that is listed on the OTC Bulletin Board would not be exempt from state registration unless it already happens to be registered under the
Uniform Securities Act. Variable annuities and stocks listed on the American Stock Exchange are classified as federal covered securities by the NSMIA of 1996 and are exempt from state registration. An amendment to the Securities and Exchange Act of 1934 exempts option contracts from state registration.
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?
Answer : D
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.
For how long after the effective date is a security"™s registration valid?
Answer : C
Explanation: A security"™s registration is valid for one year after the effective date, which is the date the Administrator approves the registration. If the entire issue has not been sold in this time frame, the offering may be renewed.
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