Part 2: Chapter 3 - Administration & Fraudulent Acts Flashcards
Define fraud.
Teh intentional misrepresentation, concealment or omission of a material fact.
What persons dealing with securities are exempt from faud?
No one
Fraud is like to have occured if …
A reasonable person makes a decision based on the misrepresented or material fact.
Can fraud occur with a sale taking place?
Yes
If an IA or IAR acts as a principal in a trade from their own account, what must they do for the client?
What type of consent is required by the client in this case?
What is the exception to the above case?
Notify them in writing prior to completion of the transaction.
Verbal ONLY
If the person is NOT acting in an Adviser capacity.
What is it called if an Advisor receives compensation based on capital gains / appreciation of managed funds?
Performance fees
What Act allows for Performance Fees? Which does not?
For whom are performance fees allowed?
NO - Uniform Securites Act (state)
YES - Investment Advisors Act of 1940 (Fed)
Qualified Investors
Define a Qualified Investor
$2.2MM net worth
$1.1MM invested assets
Clients must be notified if there’s an assignment of their contract with an IA change to an IA. What are two instances considered to be an Assignment? What’s an instance NOT considered?
Do clients need to be notified of changes to an IAs address or phone number?
Considered
- Change from sole proprietor to partnership
- Change of a Majority partner
NOT Considered
- Change of a Minority partner
Yes
Excessive trading in a customers discretionary account is know as _______________.
Churning
What is giving a customer a “free-ride?”
Allowing them to purchase securities with no money exchanging and selling them before completing the transaction.
Can a person tell a client that registration of a security means “approval?”
No
Define the Administrator?
The designated person in a state to enforce the USA.
The Administrator has authority over persons and transactions …
Registered in their state
Executed in their state
Affecting people in their state
Where can the Administrator’s investigations take place?
Within AND Outside the Administrators state?
What can the Administrator do?
What can they NOT do?
Investigate
Require statements under oath
Gather evidence
Subpoena
Arrest
Indict
Confiscate property
What’s the statute of limitations for Civil suits after …
- A sale or investment advice given
- Discovery of a violation’s facts
3 years
2 years
If the Administrator believes a violation has occured OR is about to occur, what FOUR things can they do?
Deny or revoke registration
Issue cease and desist orders
Bring court actions
Engorge commissions
Under the USA, what are the max fine and imprisonment for CRIMINAL acts?
What is the statute of limitations?
$5,000 and 3 years
5 years
If a sale occurred, what’s the calculation for a which a customer can sue?
Can punitive, double or treble damages be charged?
Security value paid
+ Interest from payment date
+ Attorney’s fees
- Any income received
No
If the Administrator requires financial statements, they must be prepared in compliance with ______________?
General Accounting Principals (GAP)
After an order submitted by the Administrator is issued by a court, how much time do persons have to appeal?
60 days
All rules and forms required by the Administrator MUST be published and amended when?
ONLY when changed
If the Administrator hold proceedings for denial, suspension or revocation, what THREE things must they provide?
What is KEY in the above question?
Prior notice
Opportunity for a hearing
Written findings
An actual PROCEEEDING
