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Series 63 > Legal Persons > Flashcards

Legal Persons Flashcards

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1
Q

Agent

A

An agent is an individual who is not a broker-dealer, but who acts as a representative of a broker-dealer to handle security purchases and/or security sales. An agent can also be a representative for an issuer of a security who handles the purchase or sale of that issuer’s securities.

Agents are sometimes referred to as Sales Representatives, or Registered Representatives.

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2
Q

Broker Dealer

A

A broker-dealer is an individual or a company (firm) that charges other individuals or entities for handling securities transactions on their behalf.

Broker-dealers may receive compensation through fees or commissions.

The term broker-dealer does not include agents (representatives of broker-dealers or the issuer of a security); issuers (an entity that makes its own securities available for purchase); international banking institutions; or any other person or entity specifically excluded by the Uniform Security Act.

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3
Q

Investment Advisor

A

An investment adviser is an individual or a company that receives compensation to provide advice to others concerning the investment, purchase, or sale of securities. The advice may be provided directly or indirectly.

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4
Q

Investment Advisor Representative

A

An investment adviser representative is an individual who is not an investment adviser, but who acts as a representative of an investment adviser. Investment adviser representatives include individuals who provide advice regarding securities, handle client accounts and/or portfolios, and/or receive compensation for seeking or obtaining clients for an investment adviser. Investment advisers also include individuals who supervise employees that perform the activities discussed above.

Clerical personnel in an investment adviser firm are not considered investment adviser representatives. Agents are sometimes called registered representatives or sales representatives.

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5
Q

Direct Advice

A

In person, or on the phone, email

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6
Q

Indirect Advice

A

Advice contained in monthly reports that analyzed securities for a subscription fee.

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7
Q

Investment Advisor Characteristics

A
  1. Offer advice to others concerning securities. Recommendation, or evaluation of the securities.
  2. The offering of said advice must be part of the person’s continuing line of business.
  3. Person must receive compensation for the advice.
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8
Q

Federal Covered Investment Adviser

A

Federal covered advisors are investment advisors who are registered with the SEC. An investment advisor is any person or firm that, in exchange for compensation, is engaged in the business of providing advice to others about securities. Regulation of investment advisors generally falls to the state in which the advisor has its principal office and place of business. However, the advisor may register with the SEC, or may be required to register with the SEC, if certain asset thresholds are met.

Not required to register with the state Administrator, but needs to provide notice of it’s status and pay filing fees.

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9
Q

Exempt from Investment Adviser Registration

A
  • Teacher
  • Attorney
  • Engineer
  • Accountant

Incidental advise must be an incidental component of the services provided.

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10
Q

National Securities Markets Improvements Act - 1996

A

Exempts persons that must register as Investment Advisers with the SEC from the requirement of the requirement to register as Investment Advisers with any state Administrators

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11
Q

Notice Filing

A

Payment by a Federal Covered Investment Adviser to the state for it’s status.

Investment Adviser Representatives for Federally Covered Investment Advisers still have to file with state Administrator

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12
Q

Conducting Business in a State Without Being Registered

A

If the investment adviser’s only clients within the state are all registered broker-dealers, investment advisers, institutional investors, and/or persons whose primary residence is an another state where the investment adviser is registered, the investment adviser is not required to register in that state.

if the investment adviser has no more than five clients within the state beyond the type of clients described above, and if the investment adviser is registered in another state, the investment adviser is not obligated to register in the state to conduct business.

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13
Q

Bond Requirements for Investment Advisers

A

Limited to the maximum amount permitted by Federal regulation

Discretionary Accounts - $10,000

Custody of Client’s Accounts - $35,000

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14
Q

Fiduciaries

A

Persons that provide investment advice.

Client’s interest ahead of their own

Must disclose any conflicts of interest that may arise from the advice.

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15
Q

Advertising Limitations

A

Message about the investment adviser.

May not include testimonials of any kind.

If historical performance is referenced, the advertisement must accurately reflect recommendations resulting in losses as well as those resulting in gains.

Applies equally to physical correspondence, email, social media, etc.

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16
Q

Not Considered an Investment Adviser Representative

A
  1. Performs only clerical, or ministerial work
  2. Incidental advice and does not receive compensation for advice
  3. Is employed by, or associated with a Federally Covered Investment Adviser unless the person has a place of business in the state.
  4. Is excluded by the order adopted.
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17
Q

Investment Advisers Registration

A

Do not have to register with state Administrator if they manage over $100M, but register with the SEC.

If managing < $100M they must register with the state Administrator.

Must notify Administrator of each Representative employed.

MAY not be required to register in a state if they are registered in another state.

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18
Q

Broker-Dealer: U.S.A

A

Person engaged in the business of effecting securities transactions for the account of others, or their own account

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19
Q

NOT a Broker-Dealer

A

Agent

Issuer

Bank, or Savings Institution

International Banking Institution

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20
Q

Broker actions

A

Performing security trading activities for a client

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21
Q

Dealer actions

A

Performs trading activities for itself. Including selling securities from it’s own account.

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22
Q

Registration for an Agent

A

Tied to a specific Broker-Dealer, or an Issuer

Broker-Dealer and Agent must notify Administrator of any changes.

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23
Q

Consent to Service of Process

A

Consenting to service of the process means that you agree to have the papers served on you in another way. This could be in the form of an alternative service, which we will discuss below. By consenting to the service of the process, you agree to receive notice of the lawsuit in a way that is less intrusive and more convenient for you.

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24
Q

Additional Application Requirements

A

the consent to service of process allows the litigating party to serve papers for the applicant by simply serving them on the Administrator.

It may also be necessary to meet financial qualifications.

Broker-dealers and investment advisers may be required to meet minimum requirements for net capital.

In addition, the Administrator may require broker-dealers, investment advisers, agents, and investment adviser representatives to obtain and maintain surety bonds up to $10,000. If required, the deposit for the surety bonds may be made by cash or securities.

If securities are used to secure the surety bond, the Administrator may specify the type of security that may be used.

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25
Q

Retain Licensing After Registration

A

All of the information contained in documents filed with the Administrator must not only be accurate and complete at the time of filing, the documents must also remain accurate and complete after filing.

If changes occur after the information has been filed with the Administrator, and any of information contained in a field document is no longer accurate or complete, the filing party must correct the document by filing an amendment.

Licenses are valid for no longer than a year. The renewal process requires that the registrant pay a fee. If the registrant does not renew prior to the license’s expiration, the license will expire at the end of the year (on December 31).

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26
Q

Dual Registration

A

Broker-Dealers may also register as Investment Advisers. They need to meet both requirements, and file applications and fees for both.

If Administrator does not approve the Investment Advisor registration they can issue the Broker-Dealer portion and the applicant would have to refrain from operating as an Investment Adviser.

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27
Q

Registration for Successors

A

Registration for Broker-Dealers and Investment Advisers may be transferred to a successor.

Allowed to operate under the previous registration for one year. Do not have to pay additional fees.

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28
Q

Automatic Registration

A

The registration of a broker-dealer or an investment adviser may cause the automatic registration of individuals associated with the broker-dealer or investment adviser. When a broker-dealer is registered, all of the directors, partners and/or officers for the broker-dealer, as well as any individual acting in a similar capacity, that are active participants in the broker-dealer’s registered activities will automatically be registered as agents.

Same applies to Investment Advisers.

Administrator may require exams from others.

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28
Q

RIA

A

Registered Investment Advisers

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29
Q

IAR

A

Investment Adviser Representative

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30
Q

Registered Agent represent multiple DB

A
  1. If the separate DB are affiliated with each other.
  2. If they receive approval from Administrator.
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31
Q

Terminating Registration

A

In the event that registered individuals decide of their own volition to terminate their registration, their employing agency must notify the Financial Industry Regulatory Authority (FINRA) in writing at least 30 days prior to that individual’s termination.

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32
Q

Margin Agreement

A

Must be obtained by Broker-Dealer with the client. Can make initial trade without the agreement, but needs one asap.

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33
Q

Securities Available To Be Sold

A
  1. A Federally covered security
  2. Registered with the state Administrator
  3. Exempt from both Federal and State registration
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34
Q

Investment Contract

A
  • Considered Securities

One form is a financial investment in a common enterprise. Hoping to earn profits if enterprise realizes profits. Can incur losses as well.

Investment providing interest in a Limited Partnership

  • Other Investors
  • Issuer
  • Third Party
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35
Q

Registration by Coordination

A

Each of the state registrations becomes effective on or after the SEC registration.

This is done to avoid duplication and time. Registered with SEC when designated for interstate trade.

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36
Q

Documentation - Registration by Coordination

A

Copies of: the most recent form of the prospectus filed with the SEC under the provisions of the Securities Act of 1933;

The articles of incorporation and current bylaws (or equivalent); any agreement that exists between or with the underwriters; and any indenture or instrument that governs the issuance of the security.

The issuer must also provide a copy, sample, or description of the security.

The issuer must also update the filing by forwarding any amendments, other than amendments that postpone the effective date of the federal registration, to the federal prospectus in a timely manner.

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37
Q

Notification - Registration by Coordination

A

Must provide timely notice to state Administrator when it will be effective with SEC

Prompt notification of any changes

Administrator could issue Stop Order without notice or hearing if not abided by

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38
Q

Effective Date for Registration

A

Tied to the effective date of federal registration.

and if the registration statement has been on file with the state Administrator for twenty days (or a shorter period designated by the Administrator).

Example: if registration has been on file with state 10 days prior to federal approval, it will be registered in state 10 days after federal approval.

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39
Q

Registration by Qualification

A

Process to be followed if not qualified for Coordination or Notification.

Requires additional information to be provided. Includes Consent to Service.

Only becomes effective when deemed so by state Administrator.

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40
Q

Information - Registration by Qualification

A
  • Must provide copies of any promotional materials used with the security.
  • Signed copy of intent from attorney
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41
Q

Additional Information - RbQ

A

Includes specific information about directors and officers.

Volume of issuers securities possessed by officers/directors 30 days prior to the issue.

Compensation from last year of Directors/Officers and anticipation for next year.

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42
Q

Information - RbQ

A
  • Type of security
  • Anticipated offer price
  • Projected volume
  • Estimated compensation to Underwriters
  • Any anticipated finders fees

Discussion of the competition in which they operate.

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43
Q

Information - RbQ (Large Investors)

A

Anyone who owns 10% or more

Issuer must specify the volume the large investor owns on a date that is no later then 30 days prior to issue.

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44
Q

Regarding the Planned Issuance

A
  • must disclose any options granted, or will be granted.

Volumes possessed by officers/directors and anyone with 10% or more.

Estimate of revenue to be generated by the issuance as well as the planned use of the revenue.

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45
Q

Financial Information - RbQ

A
  • Balance sheet (no more then 4 months prior to filing)
  • statement of income each of the previous 3 years.

if revenue used to by another company; provide information on that company. Also the long term debt of the issuer

46
Q

Registration by Notification

(Registration by Filing process)

A

Must demonstrate they are qualified to register by this process.

Location, type of operation and length of operation

Description of security to be registered.

Why will be sold by anyone other then issuer, how many shares allotted.

47
Q

RbN - RbF (less then 5 years in business

A
  • summary of earnings in the two previous years.
  • balance sheet covering the time no later then 4 months prior to issue.
48
Q

RbN - Effective Registration Date

A

Automatically effective at 3:00 pm EST on 2nd business day after filing.

49
Q

Denial, Suspension or Revocation of Registration,

A

All involve instances in which party registering security is involved in unethical, fraudulent, or inappropriate actions.

50
Q

Qualification Issues

A

Does not meet standard financial requirements.

Intentional violation of the provisions of the U.S.A

51
Q

Preliminary Prospectus (Red Herring)

A

Except for Offering Price and Date of Availability

52
Q

Timing for Offering Sale of Securities after Registration

A

issuers that register a security with the Securities and Exchange Commission (SEC) may not begin sales for the security immediately following registration.

Instead, issuers must wait for a period of at least 20 days before engaging in any sales activity for the recently registered security.

During this waiting period, broker-dealers are permitted to canvas their clients to solicit indications of interest. An indication of interest is an indication that the client may be interested in investing in the security once it is available

however, no sales material (literature, cost information, etc.) may be provided to potential investors during the waiting period.

53
Q

Sale of Security

A

If a security is transferred to another party for anything of value it is considered a sale.

53
Q

Timing of Offering

A

Cannot purchase the security, or be given the offering price

54
Q

Assessable Stocks

A
54
Q

Regulated Securities Transactions

A

Regulated securities transactions include instances where a party offers a security as an incentive or bonus offering to encourage the sale of a non-security.

55
Q

Non-Assessable Stocks

A

Gifts of non-assessable stocks are not considered regulated transactions and do not need approval of Administrator

55
Q

NASDAQ traded securities

A

Other then those on the National Market are regulated by the state

56
Q

Uniform Securities Act

A

Establish uniform, understandable laws across the states

Defines the characteristics of individuals and entities that are subject to regulation

56
Q

Provisions of the U.S.A

A
57
Q

National Securities Markets Improvements Act 1996

A

Established division of responsibility between state an federal regulators

58
Q

Federal Covered Adviser

A

An investment adviser that falls under the jurisdiction of the SEC is referred to as a federal covered adviser and is not subject to investor adviser regulation by the Administrator of the Uniform Securities Act.

59
Q

Securities Litigation Uniform Act

A

The Securities Litigation Uniform Standards Act of 1998 gives federal courts the ability to assert jurisdiction over class actions suits involving securities fraud that have been filed in any given state and to preempt the state courts. This legislation was enacted to ensure federal courts would evaluate any class-action suit involving securities fraud using uniform federal laws regardless of the state in which the alleged fraud occurred.

60
Q

National Conference of Commissioners on Uniform State Laws

A

Drafted the U.S.A.

Established to eliminate conflicts between State regulations and Federal regulations

61
Q

Investment Company Act of 1940

A

The Act requires that all investment companies register with the Securities and Exchange Commission (SEC). Investment companies and investment company securities are federally covered and are not subject to registration with state Administrators.

In addition to establishing registration requirements for investment companies, the Investment Company Act of 1940 also outlines the restrictions and duties that apply to investment offerings that investment companies make available to the public.

62
Q

Investment Advisers Act of 1940

A

Federal legislation that defines an Investment Company

Outlines the restrictions and duties and which Advisers must register with the SEC

63
Q

Securities Investor Protection Act 1970 SIPC

A

Federally Mandated insurance agency.

Protects consumers from Broker-Dealer bankruptcy or fraud.

Providing coverage up to $500,000

Non-profit, not federally regulated

64
Q

Trust Indenture Act of 1939

A

The Trust Indenture Act of 1939 establishes special requirements for any publicly issued debt security that exceeds five million dollars within any given twelve-month time frame. Under the provisions of this act, such debt securities may only be issued under a trust indenture.

To issue a bond, the issuer hires a third-party trustee, usually a bank or trust company, to represent investors who buy the bond. The agreement entered into by the issuer, and the trustee is referred to as the trust indenture.

65
Q

Public Utility Holding Company Act

A

The Public Utility Holding Company Act of 1935 is federal legislation requiring that holding companies for gas and electric utilities be federally registered unless specifically exempted from registration. This legislation was designed to guard against abuses by such companies.

66
Q

Securities Investment Protection Corporation (SIPC)

A

Only insures investors against loss due to theft, or default for securities and cash handled by a broker-dealer.

67
Q

FDIC

A

Provides insurance against loss up to a set amount. $250,000

68
Q

Gramm-Leach-Bliley Act

SEC Regulation S-P

A

Protect information of investors. Safeguard holding and disposal of credit information.

Provide written notice of how they will comply.

Investment companies
Investment advisers
Broker-Dealers

As well as financial companies outside the securities industry

69
Q

Bank Secrecy Act

Currency and Foreign Transactions Reporting Act

A

Targets broker-dealers and financial dealers who may aid in investors laundry money, evade taxes, or perform illegal acts.

The BSA also instituted an obligation for financial institutions and broker-dealers to report any aggregate daily cash transaction in excess of ten thousand dollars.

70
Q

Employee Retirement Income Security Act

A

Federal legislation that regulates management and operation of retirement accounts Benefit Plans and Pension Plans

Does not apply to government benefit plans, or public pension plans.

71
Q

Regulation of Financial Institutions

A

Financial Institutions are not regulated by U.S.A. Not considered broker-dealers

  • Banks and Savings & Loans
  • Insurance Companies
  • Trust companies
  • Pension Trusts
  • Institutional Buyers
  • Profit Sharing Trusts
72
Q

Registration Statement

A

Size of the offering and the quantity. Any other states in which the security will be offered.

73
Q

Interstate Transactions

A

Fall under the federal level with the SEC. Traded on national boards.

Securities issued by investment companies that are covered under the Investment Company Act of 1940 are federally covered.

74
Q

Exempt Securities

A

Finally, securities issued as a promissory note that have a minimum worth of at least $50,000 and that receive one of the three highest possible rates from a nationally recognized statistical rating firm qualify for registration exemption if the promissory note matures within 270 calendar days (nine months) of issuance.

74
Q

Securities Exempt from State Registration

A

Securities that are issued, guaranteed, or otherwise insured by the U.S. government.

Securities that are issued, guaranteed, or otherwise insured by local governments and municipalities.

Canada and other countries in which we have diplomatic relations.

These state-exempt securities include securities issued and/or guaranteed by a bank, savings institution, trust company, savings and loan, building and loan, credit union, or an international bank. These also include securities issued and/or guaranteed by an insurance company to finance a debt.

Exempt securities also include securities issued by a utility or company that is government by the Interstate Commerce Commission or the Public Utility Holding Company Act of 1935, including railroad securities, common carrier securities, public utilities, and public utility holding company securities.

Non profit organizations
- church
- school
- Athletic clubs
- charitable institutions

75
Q

Enforcing Anti-Fraud

A

State Administrator enforces violations of fraud even if the security is exempt from registration, or is federally covered.

All securities transactions that occur in the state.

76
Q

Loss of Exemption Status

A
  1. Churches, Schools, Athletic Clubs, etc.
  2. Investment contracts issued in conjunction with a benefit plan (stock option, pension, savings, or profit sharing.
77
Q

Exempt Securities Transactions - Non Issuer

A

Unsolicited, non-issuer, client-initiated securities transactions that are handled by a broker-dealer are considered exempt transactions. Similarly, non-issuer transactions between foreign non-issuing parties are considered exempt transactions. Isolated securities transactions between two non-issuers are also considered exempt, whether handled privately or by a broker-dealer.

78
Q

Exempt transaction on Limited Base

A

In order to qualify as an exempt transaction under this provision, the offering of the security must be private in nature and available to fewer than ten non-institutional investors within the state within the previous twelve-month period. In addition, the security must be sold based on the seller’s belief that these non-institutional buyers are purchasing the security solely for investment purposes.

79
Q

Exemption Based Upon the Party Initiating the Transaction Securities

A

transactions that are initiated by named fiduciaries are exempt. This exemption includes transactions initiated by the executor of an estate, the administrator of a trust, sheriffs and marshals, and bankruptcy trustees and receivers.

80
Q

Registration Requirements for Securities Subject to Exempt Transactions

A

A non-exempt security is any security that does not qualify for exemption from registration with the state Administrator due to the identity of the issuer or type of security. A non-exempt security need not be registered with the state Administrator if the non-exempt security will only be used as part of exempt transactions.

80
Q

Exempt Securities based on Issuers Organization

A

Both the issuer and the other party involved in the transaction must be a part of the merger, reorganization, or consolidation

In order to be classified as an exempt securities transaction under this provision, no commissions or other compensation can be paid for the solicitation of the transaction, and no subscriber may make any payment for the offering.

81
Q

Registration of Securities by Qualification Filing

A

For a securities issuer to file by qualification, it must file a consent to service of process and an application.

82
Q

Isolated Non-Issuer Transactions

A

An isolated non-issuer transaction is a securities transaction that occurs infrequently and is unassisted by investment professionals. The transactions are effected on an investor-to-investor basis, and no broker-dealers or agents are involved.

83
Q

Registration Process for Securities at the State Level

A

On the application, the registrant must inform the Administrator as to the size of offering of the securities (in that state only), other states in which the offering will be made, and if there have been judgments or orders by other authorities negatively affecting the issue. The registrant must then submit a filing fee required by the Administrator.

84
Q

Rule vs. Order

A

Rules are for all, orders for an individual

A person affected by an order may challenge the ruling for up to 60 days after the issue.

85
Q

Concerning Contumacy

A

Contumacy is the failure of a person to appear before or provide evidence to the Administrator when subpoenaed.

85
Q

Issuance of Cease & Desist Orders

A

Administrator deems that a person is either acting or about to act in a manner contrary to state securities regulations and the USA, he or she may issue a cease-and-desist order and bypass any hearing associated therewith; the person who is the subject of the order must immediately cease the practice disallowed by the order.

86
Q

Denying, Cancelling, and Revoking Registration

A

The Uniform Securities Act (USA) gives the state securities Administrator the power to revoke, cancel, or deny the registrations of persons who do business in the securities industry (within that state) as well as the state registrations of any securities registered in that state.

87
Q

State Securities Administrator Exercising Summary Powers

A

When the Administrator is said to have acted summarily, it means he or she has given an order regarding registration (revocation or postponement) without submitting to a hearing to determine actual reason to act as such. This applies to registration of persons or securities.

87
Q

Administrator’s Jurisdiction

A

The Uniform Securities Act is the source of the Administrator’s jurisdiction. Generally speaking, the Administrator has jurisdiction over securities transactions and the persons performing those transactions for the Administrator’s state. In order for a securities transaction to fall under the Administrator’s jurisdiction, the securities transaction must originate within the Administrator’s state, be directed to the Administrator’s state, or be accepted in the Administrator’s state.

88
Q

Broadcast or Publication Jurisdictions

A

Broadcast distribution will have jurisdiction located where the broadcast originates.

Same as publication

89
Q

Role of Administrator

A

The Administrator under the Uniform Securities Act is the administrative agency, government official, or appointed representative that is responsible for handling the administration and enforcement of the Uniform Securities Act in a particular jurisdiction. The Administrator will handle the registrations and licensing in the securities industry and take action as necessary to ensure compliance. In this role, the Administrator is responsible for determining whether specific applicants qualify, and continue to qualify, to be registered or licensed.

90
Q

Administrator Enforcement Authority

A

Prior to issuing any order other than a cease-and-desist order, the Administrator must first allow the other party an opportunity to present its case in a hearing.

That party has 60 days to appeal orders impacting a license (denial orders, suspension orders, and revocation orders).

91
Q

The Right of Rescission

A

Offering to purchase back the security plus interest and attorney fees

The buyer has thirty days to accept the offer. If the buyer does not accept the offer, the buyer gives up the right to file a lawsuit on the matter.

92
Q

Fraud

A

The activity is not considered fraudulent unless the person deliberately acted in a manner designed to mislead.

The statute of limitation for such criminal offenses under the Uniform Securities Act is five years and may carry a maximum penalty of $5,000 and/or up to three years in prison.

93
Q

Restitution for Investment Advice

A

Losses incurred because of the advice and attorney fees. Does not include the cost of the purchase.

94
Q

Civil Penalties for Violators of USA

A

An investor also has the right to sue if he or she is the victim of fraud. In order to file such a lawsuit, the investor must initiate proceedings within two years of the investor’s discovery of the violation, or within three years from the date that the investor purchased the security or received the advice the advice at issue, whichever is earlier.

94
Q

An Offer

A

Includes any attempt to make a security available to another party.

95
Q

Registration Process

A

If the Administrator identifies no issues with the application, the requested license will be granted at noon on the thirtieth day. If, however, the Administrator finds problems with the application, the Administrator may choose to amend or deny the application. When amending the application, the Administrator may make the license conditional on meeting certain additional requirements or place limits on the applicability of the license.

96
Q

Record Keeping Requirements

A

All required records must be kept available for…

  • 3 years Broker Dealers
  • 5 years Investment Advisers
97
Q

Registration Review Process

A

The Administrator reviewing the qualifications of a firm seeking licensing as a broker-dealer or investment adviser may only consider the personnel or associates of the firm that are actively involved in the firm’s activities involving securities. The Administrator may not consider personnel that work for the firm, or individuals that have invested in the firm but are not involved in day-to-day activities concerning securities.

98
Q

Notification of intent to Deny, Suspend, or Revoke Registration of Security

A

If a state Administrator intends to issue an order to deny, suspend, or revoke the registration of a security, the Administrator must first provide notice of its intent and the Administrator’s written findings of fact and conclusions of law to the issuer of the security. Upon receipt of such notice, the issuer of the security has the right to contest the finding by requesting a hearing.

99
Q

Notice Filing Method of Registration

A

Both processes are means by which an issuer may register a security that must be registered with the SEC with a state administrator. The notice filing method of registration is only available to issuers that have been in business for a minimum of three years. Eligible issuers must also have filed all reports required by the SEC during the previous three years.

100
Q
A
101
Q
A
102
Q
A
103
Q
A

Series 63 (6 decks)

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