Chapter 4 Part 1 Flashcards
Fraud is defined as
intentional deception carried out for personal gain or to damage another individual. As the definition suggests, fraud is not an accidental or inadvertent action.
Under the USA, it is unlawful for any person, in conjunction with the direct or indirect offer, sale, or purchase of any security, to directly or indirectly
“Employ any device, scheme, or artifice to defraud, Make an untrue statement of material fact, or omission of any material fact needed to make a
statement not misleading Engage in any act, practice, or course of business that operates, or would operate, as a fraud or deceit upon any person”
the NASAA
Statement of Policy on Dishonest or Unethical Business Practices provides guidance regarding acceptable and unacceptable activities
No person may make
false or misleading statements in connection with the purchase or sale of a security. This applies to investors as well as securities professionals.
The Administrator and the SEC do not provide approval for
securities, but require that the securities be registered. Suggesting that a security is legitimate or safe because it has been registered is misleading
Unless the broker-dealer or agent has firm grounds (such as a press release) for believing that the security is about to be listed on an exchange, stating that a security is about to be listed in order to induce a purchase, is considered
misleading.
Although it is never easy to give clients bad news, agents should never tell clients that everything is okay with their accounts when, in fact,
a stock position is falling in value. Misrepresenting the true market price of a stock by quoting yesterday’s price is unethical.
prohibited for any person to Tell a client that a broker-dealer’s or agent’s registration implies that
its business practices, knowledge, or capabilities have been certified or approved by the SEC, the Administrator, or FINIRA
prohibited for any person to Promise to perform
certain services without intending to do so
prohibited for any person to Promise free services and then
charge hidden fees
prohibited for any person to Falsely state
anticipated or current earnings, the amount of a commission or markup
prohibited for any person to Overstate or 1nisrepresent the status of a client’s
account
prohibited for any person to Provide
false infor1nation
It is also considered an unethical business practice for a broker-dealer to publish or circulate an advertisement, report, notice, or communication that reports a transaction unless the broker-dealer has reason to believe
the transaction is a bona fide purchase or sale. The same condition applies to agents
Spreading Rumors In Order To Effect
Transactions
It is a prohibited practice for a financial professional to induce the sale of a stock or mutual fund based on an impending
“dividend. An investor who buys the stock or mutual
fund in order to receive the dividend is effectively receiving her money back in the form of a taxable dividend. If the investor waits to buy the stock or mutual fund on or after the exdividend date, the price she will pay is adjusted”
While it is virtually impossible to relate all known facts, a reasonable person can determine ifthe information is
a material fact-it is important in deciding whether to engage in a particular transaction. Withholding material facts when involved in securities transactions is considered fraudulent and deceitful
Insider information is
any material information that has not been disseminated to the public
Agents in possession of insider information may not discuss it with anyone
except a supervisor
An agent must be careful not to make
unsuitable recommendations
