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Series 66 > Chapter 2 > Flashcards

Chapter 2 Flashcards

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Series 66 flashcards
1
Q

Cease and Desist

A

Registered Person has engaged or is about to engage in any act or practice. Applies to individuals not securities

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2
Q

Stop Order

A

Deny effectiveness, or suspend or revoke effectiveness of any registration Statement.
Applies only to securities

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3
Q

Summary Order

A

Acting without prior notice

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4
Q

Summary Actions

A

Postponing or Suspending the registration of any securities Professional pending final determenation
Postponing/Suspending registration of security pending determination or proceedings
Deny or revoke a specific security or transaction exemption.

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5
Q

Final Orders

A

No final order may be ordered without
Appropriate notice
Opportunity for a hearing
Written Findings of Conclusion

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6
Q

Legal Persons

A

Can be sued in a court of law. Includes IA, BD, trusts, associations, joint stock companies, governments, political subdivisions of governments.

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7
Q

Exclusion

A

Excluded from, or not included in definition.

1) Represents Issuer
2) Effect Securities Transactions in exempt securities.
3) Exempt Transactions
4) Effecting transactions with existing employees when no commissions are paid.
5) No commissions paid.

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8
Q

Exclusions from B/Ds

A

Agents
Issuers
Banks, Savings Institutions, Trust companies (not engaged in b/d activities).
Domestic Commercial Banks and other Financial Institutions.

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9
Q

No Place of Business in the State

A

Have no Place of business in the state and deal exclusively with issuers, b/d, financial institutions such as banks, savings and loan associations, trust companies, insurance companies, investment companies, and pension or profit-sharing trusts.
Have no place of business, but are licensed in a state where they have a place of business, and offer and sell securities in the state only with persons in the state who are existing customers and are non-residents. Applies to Agents, B/D, IA, and IARs.

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10
Q

Using the Internet

A

Communication clearly states that person may only do business in this state if properly registered or exempt from registration.
IA, individualized responses, effecting, will not be made without compliance with state b/d, ia, agent, IAR, or applicable exemption or exclusion.
General Info only.

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11
Q

Using the Internet IA or Agent

A

Affiliation with b/d must be disclosed
B/D IA has responsibility to review and approve content or any internet communication
B/D IA approve and authorizes information or products/services offered.
Acts within authority.

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12
Q

B/D Registration Requirements

A

Financial Requirements. Such as Net capital requirements. May not exceed those of SEA of 1934. Administrator may require those B/D that have custody or discretion to post surety bonds. Instead the Administrator may take cash or securities.

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13
Q

Books and Records

A

Accounts, correspondence, memoranda, papers, books, and other records as the state Administrator by rule prescribes. Amendments must be filed promptly. Included are electronic communications. Administrator authority doesn’t stop at the state line. Administrator of any state where the registrant is registered may demand an inspection during reasonable business hours with whatever frequency and without prior notice.

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14
Q

Agent

A

Any individual who represents a b/d or an issuer (legal entity) in effecting or attempting to effect transactions in securities. They represent issuers or b/d

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15
Q

Effecting Transactions in Exempt Securities

A

Securities Exempt from Registration
US Government and Municipal Securities
Securities of Governments with which the US has diplomatic relationships
Securities of US commercial banks and savings institutions or trust comoanies (not engaged in securities related b/d activities).
Commercial paper 270. 50,000 top 3.
Investment Contracts issued in connection with employee’s stock purchase, savings, pensions, or profit sharing plans.

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16
Q

Exempt Transactions

A

Isolated Nonissuer Transactions
Transactions between issuer and underwriters
Transactions between Savings Institutions or Trust companies.
Private Placements.

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17
Q

Investment Adviser

A

advice given on collectibles, real estate, or other non-securities, doesn’t consitute advice.

1) must provide advice about securities
2) Provide advice as ongoing business.
3) Receive compensation

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18
Q

General Registration Procedures

A

IA, B/D, IAR, Agents
Submit an applications
Provide a consent to service of process
Pay filing fees
Post a bond (if required by Administrator)
Take and Pass an examination. Written, Oral or both.

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19
Q

Submit Application

A

Form and place of business
proposed method of doing business
Qualifications and Business History (B/D and IA) must include qualifications and history of partners, officers, directors, and other persons with controlling influence over the organization.
Injunctions and administrative orders
Convictions of misdemeanors incolving a security
Felony convictions, whether securities or not.
Financial condition and history
Form ADV if Investment Adviser.
May also require applicant publish an announcement of the registration in one or more newspapers in the state.
Fingerprints do not have to be submitted.

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20
Q

Termination of an IAR

A

Federal Covered - IAR must report to administrator

State Covered - IA must report to administrator

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21
Q

Successor Fees

A

Not applicable to state covered B/D or IA

Applicable to federal covered B/D IA

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22
Q

Not Securities under USA

A 
Insurance/Endowment, Annuity - Fixed
Interest in Retirement Plan IRA/Keogh
Collecibles
Commodities Including Futures Contracts
Condominiums for personal residency
Currency
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23
Q

Nonexempt Security

A

If a security is not registered or exempt from registration, it cannot eb sold in a state unless it is sold in an exempt transaction.

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24
Q

Issuer

A

Governments and Companies. If issuer is non exempt it must register its securities in the states where they will be sold under one of the registration methods.

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25
Q

Federal Covered Securities

A

Cannot be Regulated by State Securities
Securities issued by an open end or closed end investment company, unit investment trust, or face amount of certificate Investment Company Act of 1940.
Securities offered persuant to Rule 506 Regulation D of 1933.
US Federal Government issuer or municipal issuer unless it’s located within state.
Securities Listed on an Exchange.

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26
Q

Notice Filings

A

Applicable to Investment Act of 1940.
Documents filed with SEC
Documents filed as amendments to the initial federal registration statement.
A report as to the value of such securities
Consent to Service of Process
Filing fee

27
Q

Registration by Coordination

A

OTCBB, Pink Sheets, Yellow Sheets, statement registered under 1933.
Copies of the latest form of prospectus filed
Copy of articles of incorporation, and bylaws, copy of underwriting agreement, or specimen of security.
Each amendment to federal prospectus.

28
Q

Effective date Coordination

A

No stop orders
Registration in file at least 10-20 business days.
Statement of maximum and minimum offering prices have been on file for 2 business days. Most frequent method

29
Q

Registration by Qualification

A

Sold intrastate
Name, address, form of organization
Information on directors, officers, and every owner more than 10%, remuneration paid to owners in last 12 months.
Description of issuers’ capitalization and long term debt.
Estimated proceeds
Type and amount of securities
Stock options
Copy of prospectus, pamphlet, circular, or sales literature.
Specimen copy of security
Audited Balance Sheet current within 4 months of the offering with an income statement for 3 years before the balance sheet.

30
Q

Exempt Securities

A

Securities exempt from state registration are also exempt from state filing of sales literature.
US and Canadian Government and Municipal Securities
Foreign Government Securities
Depository Institutions - banks, savings institutions.
Insurance Company Securities - authorized to do business in state.
Public Utilities -
Federal Covered Securities
Nonprofit
Cooperatives - securities issued by a nonprofit membership cooperative to members of that cooperative.
Securities of employee benefits - investment contract issued by an employee stock purchase, saving, pension, or profit sharing plan.
Commercial Paper and Bankers’ acceptances

31
Q

Exempt Transactions

A 
Isolated Nonissuer Transactions
Unsolicited Brokerage Transactions
Underwriter Transactions
Bankruptcy, Guardian, or Conservator 
Institutional Investor Transactions
Limited Offering Transactions
Preorganization Certificates
Transactions with existing security holders
Specified Nonissuer Transactions
Nonissuer Transaction by Pledges
Unit Secured Transactions
Control Transactions
Rescission Offers
32
Q

Isolated Nonissuer Transactions

A

whether effected through a broker or not, that occur infrequently. Usually don’t involve professionals. Neighbor sells to neighbor.

33
Q

Unsolicited Brokerage Transaction

A

Initiated by the client, not the agent. Rule require acknowledgement.

34
Q

Bankruptcy, Guardian, Conservator

A

Transactions by executor, administrator, sheriff or trustee in bankruptcy.

35
Q

Limited Offering

A

Private placement, directed to no more than 10 persons in 12 months, provided that:
Seller belives that all noninstitutional buyers are purchasing for investment purposes only.
no commissions
no general solicitation or advertising.

36
Q

Preorganization Certificates

A

no commissions or other renumeration is paid or given directly or indirectly for soliciting any subscriber.
Number doesn’t exceed 10
No payment is made by any subscriber

37
Q

Transactions with existing security holders

A

Convertible Securities,
Warrants
Rights
Is exempt as long as no commission or other form
Exempt as long as no commission or other form of remuneration is paid directly or indirectly for soliciting that security holder.

38
Q

Specified Nonissuer Transactions

A 
These include nonissuer transactions by a registered agent, provided that the security has been outstanding in the public's hand for at least 90 days and the issuer has:
Registered a class of securities under 1934
Filed and maintained information comparable to that require under the SEA of 1934. Investment Company transactions.
39
Q

Nonissuer transaction by pledges

A

Deposit of security as collateral for a loan. One who received the security as a pledge.

40
Q

Unit Secured Transactions

A

transactions in a bond backed by a real mortgage or deed of trust provided entire mortgage or deed of trust is sold as a unit.

41
Q

Control Transactions

A

Mergers, Consolidations, Reoganization transactions to which the issuer and other person or its pary or subsidary are parties.

42
Q

Administrator Powers

A

By rule or order revoke the registration exemption of:
Any security issued by any person organized and operated not for private profit but exclusively for religious, charitable, educational, benevolent.
Any investment contract issued in connection with an employee’s benefit stock purchase, savings, pension, profit sharing, or similar benefit plan.
Can only revoke exemption of these securities, buy can revoke transaction exemptions from all except federal covered securities.

43
Q

Registration Statements are filed by the

A

Issuer
Selling Stockholder
Broker/Dealer

44
Q

Filing of Registration Statement

A

Amount of Securities to be issued in state
States in which the security is to be offered, but not amounts
Any adverse order or judgement concerning the offering by regulatory authorities, court or the SEC.

45
Q

Under USA Reports must be filed

A

No more often than quarterly

46
Q

Escrow

A

If the security is issued:
Within the past 3 years
at a price substantially different than previous offerings
to any person for other than cash

47
Q

Withdrawal of Registration

A

May not be withdrawn until one year after its effective date if any securities of the same class are outstanding and may be withdrawn only with approval of administrator.

48
Q

Revocation of Registration

A 
Public interest and
False or incomplete statement
Violation of USa
Business is illegal
Fraudulent registration
Underwriter charges unreasonable fees
Issue is subject to a court injunction
Subject to administrative stop order of another state.
Notify applicant and if requested, provide a hearing within 15 days.
49
Q

Major Fraud

A

Misleading or untrue statements
Failure to State Material Facts
Using Inside Information
Making unsuitable investment Recommendations
Exercising discretion without authority
Loaning/Borrowing Money/Securities to clients
Commingling Customer Funds and securities with those of B/D or agent
Guaranteeing client profits
Sharing in Client Accounts
Market Manipulation

50
Q

Market Manipulation

A

Matched Purchases - occur when market participants agree to buy and sell securities themselves to create the appearance of activity.
Wash Sale - Investor buys in one brokerage account while simultaneously selling it in another brokerage account. No change in ownership has occurred.

51
Q

Other Prohibited Practices

A

Failing to follow a customer’s orders
Selling Away
Failing to bring written complaints or trade errors to attention of supervisory
Failing to state commissions or dealer transactions
Soliciting orders for unregistered, nonexempt securities.
Dividing/Splitting commissions with a non registered agent or affiiated one.
Backdating records and confirmations

52
Q

Sale or Sell

A

Every contract of sale, contract to sell, and disposition of a security or interest in a security for value. Money or other consideration involved.

53
Q

Offer or Offer to Sell

A

Every attempt or offer to dispose of, or solicitation of an an offer to buy, a security or interest in a security for value.
Security given or delivered with, or as a bonus on account of any purchase.
Gift of assessable stock
Warrant or right to purchase or subscribe to another security

54
Q

Offer or Offer to sell don’t include

A

Bona Fide pledge or loan
Gift of Nonassessable stock
Stock dividend, stock splits
Class vote by shareholders, merger, consolidation, incorporation, reclassification of securities, sale of corporate assets in consideration of the issuance of securities of another corporation.
Act incident to a judicially approved reogranization with which a security is issued in exchange for one or more outstanding securities, claims or property interest.

55
Q

Publishing and BroadCast Exceptions to Jurisdiction

A

Offer would not be made in an Administrator’s state, and therefore the Administrator would not have jurisdiction if it were made in:

1) A television or Radio broadcast that originated outside the state.
2) A bona fide newspaper or periodical published outside the state.
3) A newspaper or periodical published in state but with more than 2/3 of its circulation outside the state.

56
Q

Revocation of B/D, Advisers and their Representatives

A

Filed incomplete, false, or misleading registration application
Willfully violated the USA
Has been convicted of a securities-related misdeamenor within the last 10 years.
Convicted of any felony in last 10 years
Been enjoined by law from engaging in the securities business.
subject to another administrator’s denial, revocation or suspension.
Engaged in dishonest or unetical securiteis practice.
Is insolvent
Adjudication of SA 1933, SEA 1944, IAA 1940, ICA of 1n40 or the commodities exchange act.
Failed to supervise employees
Failed to pay fees
Not qualified in basis of training, lack of experience, and knowledge of the securities business.

57
Q

Civil Liabilities USA

A

Recover if;
Securities were sold in violation of the registration provisions.
Securities professional omits or makes untrue statements of material fact
Securities were sold by an agent who should have neen but was not registered
Securities were sold in violation of a rule or order of teh securiteis administrator.

58
Q

Civil Liabilities USA statute of Limitations

A

3 years from date of sale, or 2 years after discovering it. Whichever is sooner. q

59
Q

Civil LIabilities Rescission Offers

A

Must include original purchase price, interest. Letter of Rescission - the buyer has 30 days after receiving letter to respond. If he doesn’t respond, accept or reject within 30 days, the buyer gives up any right to pursue a lawsuit at a later date.

60
Q

Right of Rescission Includes (Agent or B/D)

A

Original Purchase Price + Interest+ Court Costs-Income received from securities.

61
Q

Rights of Recovery Improper Investment Advice

A

Cost of Advice, Losses, Interest and Attorney Fees.

62
Q

Criminal Penalties USA

A

Willful Fraud. and deceit. Statute of Limitations is 5 years from date of offense.
5-5-3.

63
Q

Judicial Review of Orders

A

May obtain a review of the order in an appropriate court by filing a written petition within 60 days.

Series 66 (6 decks)

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