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Series 65 > Series 65 wk 7 > Flashcards

Series 65 wk 7 Flashcards

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1
Q

What did the National Securities Markets Improvement Act of 1996/Coordination Act do?

A

Eliminated regulatory duplication of effort and established registration requirements for investment advisers.

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2
Q

What are the registration requirements of the National Securities Markets Improvement Act of 1996?

A

A federally covered investment adviser must register with the SEC and is any investment adviser who:

  1. Manages at least $110M
  2. Manages investment company portfolios
  3. Is not registered under state laws
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3
Q

What must all federally registered investment advisers do (2)?

A
  1. Must pay state filing fees
  2. Must notify the administrator in the states in which they conduct business
    A securities administrator may not audit a federally covered investment adviser unless that adviser’s principal offices are located in that administrator’s state.
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4
Q

If an investment adviser manages less than $100M, what are they required to do? What about over $100M?

A

Less than $100M – required to register with the state
More than $100M – becomes eligible for federal registration (An investment adviser who manages between $100 and $110 may choose to register either with the state or with the SEC)

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5
Q

When an investment adviser reaches $110M AUM, when must they register with SEC?

A

90 days after reaching $110 AUM, must file Form ADV and adviser’s registration will become effective within 45 days.

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6
Q

What happens if investment adviser’s AUM falls below $90M?

A

Adviser must withdraw federal registration by filing Form ADV-W within 60 days and is required to register with the appropriate states within 180 days.

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7
Q

What does the Dodd-Frank Wall Street Reform Act of 2010 define the current levels of investment advisers as?

A
  1. Small adviser: advisers with less than $25 AUM
  2. Mid-size adviser: advisers with $25M-$100M AUM
  3. Large advisers: advisers with more than $100M AUM
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8
Q

How much do pension consultants need to have to be eligible to become federally registered?

A

$200M AUM

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9
Q

Where must all investment adviser representatives register?

A

Those who maintain an office within the state must register within the state.

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10
Q

Who is considered an investment adviser representative (4)?

A

An individual who:

  1. Gives advice on the value of the securities
  2. Gives advice on the advisability of buying or selling securities
  3. Solicits new advisory clients
  4. Is an officer, director, or partner of the investment adviser
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11
Q

If an investment adviser representative represents a federally covered investment adviser, where do they need to register?

A

Must register with the state where they work as well as where they have clients even though firm is not required to register.

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12
Q

What must an investment adviser submit to the state securities administrator in order to register with the state (4)?

A
  1. Application Form ADV
  2. Consent to service of process
  3. Filing fees
  4. Audited balance sheet within 90 days of year end
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13
Q

Who must maintain a minimal level of financial solvency (capital requirements)?

A

State registered investment advisers. Federally registered investment advisers are not required to meet any capital or net worth requirements.

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14
Q

What is minimum net capital for advisers with custody of a customer’s cash and securities? What happens if they can’t meet this requirement?

A

$35K, if can’t meet requirement, need to post a surety bond.

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15
Q

When is an adviser considered to have custody?

A

If they have their customers’ cash and securities held at their firm or if they have full discretion over their customers’ accounts.

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16
Q

What does full discretion allow adviser to do?

A

Allows adviser to withdraw cash and securities from customer’s account without consulting the customer.

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17
Q

What is net capital minimum for advisers with limited discretionary authority over customers’ accounts?

A

$10K, this means they may not withdraw or deposit cash or securities without customer’s consent

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18
Q

If a state registered adviser’s net capital falls below minimum requirement, what must adviser do (3)?

A

Notify the state administrator of the adviser’s net worth by the close of the next business day and file a financial disclosure report with the administrator by end of next business day. Also required to post a bond to cover capital deficiency (bond will be rounded up to nearest $5K).

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19
Q

Who must maintain a positive net worth at all times? Who are not required to maintain minimum level of liquidity?

A

Must maintain positive net worth – investment advisers with custody of funds
Not required to maintain minimum level – investment adviser representatives

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20
Q

The state securities administrator may require who to take an exam which can be oral, written or both?

A

Investment adviser representatives as well as officers and directors of the firm

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21
Q

What is requirement of net capital , surety bond, exam and fees for broker dealer, investment adviser and agent?

A

Broker dealer: Net capital – Yes; Surety bond – Yes; Exams – Yes; Fees – Yes
Investment adviser: Net capital – Yes; Surety bond – Yes; Exams – Yes; Fees – Yes
Agents: Net capital – No; Surety bond – Yes; Exams – Yes; Fees - Yes

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22
Q

What is a “rush order”

A

When administrator allows registration of any applicant to become effective in a period of less than 30 days

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23
Q

All advertising and sales literature for an investment adviser must be filed with the state securities administrator. The administrator may require prior (3):

A
  1. Form letters
  2. Prospectuses
  3. Pamphlets
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24
Q

What must investment advisers keep the following records for a minimum of 5 years unless that state securities administrator requires a different period of time (3):

A
  1. Advertising and sales literature
  2. Account statements
  3. Order tickets/order memorandum
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25
Q

What 9 things must investment advisers keep accurate records relating to?

A
  1. Cash receipts and disbursements
  2. Income and expense ledgers
  3. Order tickets, including customer’s name
  4. Adviser’s name, including executing broker and discretionary information
  5. Ledgers and confirmations for all customers for whom the adviser has custody
  6. Financial statements and trial balance
  7. All written recommendation to customers
  8. Copies of advertisements, circulars, and articles sent to more than 10 people (NASAA requires copies of records sent to 2 or more people to be maintained
  9. Copies of calculations sent to more than 10 people (NASAA requires copies of calculations sent to 2 or more people to be maintained).
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26
Q

What is an investment adviser required to provide all prospective clients?

A

A brochure or with Form ADV Part 2A and 2B at least 48 hours prior to the signing of the contract or at least at the time of the signing of the contract, if the client is given a 5-day grace period to withdraw without penalty.

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27
Q

What will the brochure or Form ADV Part 2A and 2B state (5)?

A
  1. How and when fees are charged
  2. Types of securities the adviser does business in
  3. How recommendations are made
  4. Type of clients the adviser has
  5. Qualifications of officers and directors
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28
Q

What must advisers who use a qualified custodian have if they do a direct fee deduction from client accounts? What rule is this under?

A

They must have written authorization from each client to deduct the fees directly from client accounts. NASAA Model Rule.

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29
Q

What must be sent to client if a fee is deducted directly from their account?

A

An invoice detailing the fee as well as the formula for determining the fee. If the fee is based on the value of the account, then the value of the account at the time the fee is charged must be provided.

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30
Q

Who must the statement for client accounts be sent by? What are the 3 entities that are classified as this by NASAA?

A

A qualified custodian, this includes these 3 entities:

  1. A banking institution covered by FDIC insurance
  2. A registered broker dealer in the business of holding or carrying customer funds and securities
  3. A foreign financial institution in the business of providing such services who segregates customer assets from its own
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31
Q

What is the role of the investment adviser?

A

Has a contractual relationship with his or her clients and must always adhere to the highest standards of professional conduct (charges a fee for his or her services for advising clients).

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32
Q

What are the additional compensation for investment adviser?

A

In addition to the fees charged by an investment adviser, an investment adviser may also:

  1. Receive commissions for executing a customer’s transaction through certain broker dealers
  2. Act as a principal in a customer’s transaction
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33
Q

What causes a person to meet the definition of an investment adviser and requires person to register?

A

The receipt of compensation (which may be made directly or indirectly for the benefit of the person receiving the advice)

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34
Q

What are 3 ways compensation can be received?

A
  1. Advice is paid for by a third party for the benefit of the person receiving the advice, such as a parent for the benefit of an adult child
  2. A corporation retains a person to advise employees regarding their pension plans
  3. A person advises employees regarding their pension plans and only receives commissions on securities or insurance products.
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35
Q

What is an agency cross transaction?

A

One in which the investment adviser represents both the purchasing and selling security holder either as an investment adviser or as a broker dealer.

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36
Q

If the investment adviser is going to execute an agency cross transaction, what must he or she must get?

A

The advisory client’s authorization in writing. (Authorization may be pulled at any time verbally and the adviser may not have solicited both sides of the trade).

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37
Q

What must adviser send to all clients annually?

A

Notice detailing the number of all agency cross transactions completed by the adviser

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38
Q

How often must an investment adviser update form ADV?

A

Annually within 90 days of the fiscal year end.

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39
Q

How often must the investment adviser provide each client with an updated brochure?

A

Within 120 days of the adviser’s fiscal year end. Brochure must be provided free of charge.

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40
Q

What information must brochure include (6)?

A

A summary of material changes to the advisory firm including:

  1. Conflicts of interest
  2. Sources of recommendations
  3. Location of customer’s funds for advisers with custody
  4. Any legal actions taken against the adviser
  5. Material facts
  6. Soft-dollar arrangements
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41
Q

What things must be disclosed by an investment adviser promptly (4)?

A
  1. Material change to the ownership or control of the adviser
  2. If adviser is a corporation and one of the firm’s major stockholders sells, pledges, or assigns their block of controlling voting shares
  3. Nature of transfer is deemed to be an assignment, client would have to give their consent to continue the relationship
  4. If advisory firm is organized as a partnership and major partner dies or departs
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42
Q

When is a person deemed to control the investment adviser?

A

If they own 25% or more of the adviser’s capital or are entitled to receive 25% or more of the adviser’s assets upon dissolution. (Officers with executive responsibilities would be considered to control adviser if person directly or indirectly has the ability to direct the policies of the investment adviser.

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43
Q

An investment adviser may not: (6)

A
  1. Borrow from a customer
  2. Commingle customer’s funds with the adviser’s funds
  3. Accept an order from a party not named on the account of the customer
  4. Churn customer accounts
  5. Make unsuitable recommendations
  6. Charge unreasonable fees
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44
Q

An investment adviser with custody of customer’s funds must (7):

A
  1. File Form ADV Part E
  2. Segregate all customer funds and securities
  3. Give the customer a written notice of the location of the funds
  4. Establish a separate bank account for the customer’s funds
  5. Provide quarterly statements showing all transactions and account status or arrange for a qualified custodian to provide such statements
  6. Go through an annual surprise audit
  7. Provide clients with a balance sheet.
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45
Q

When is a state registered investment adviser considered to have custody of funds? What must they provide and do?

A

State registered investment advisers who charge upfront fees of $500 or more and more than 6 months in advance. They are required to provide clients with a balance sheet and make required disclosures relating to the location of assets.

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46
Q

When is a federally registered adviser considered to have custody of funds?

A

Federally registered adviser will be deemed to have custody if upfront fees are $1200 or more and more than 6 months in advance.

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47
Q

What does NASAA require any state registered investment adviser to do if they inadvertently receive a check made payable to a client? What happens if they don’t do this?

A

Client must return check to sender within 72 hours (3 days), if adviser doesn’t return check in time required, then NASAA will consider the adviser to have custody of client funds. (does not apply at federal level or in cases where clients write a check payable to a third party such as a bank, brokerage firm, or other third parties).

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48
Q

State securities administrator may or nay not allow advisers to have custody of clients’ funds, if custody is allowed, what must adviser do?

A

Notify the state that they have custody and adhere to all requirements relating to custody of client funds.

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49
Q

All investment adviser contracts must be in writing and must contain disclosures of (7):

A
  1. Length
  2. Services to be provided
  3. Fees to be charged and how they are assessed
  4. Amount of any prepaid fees to be returned upon cancellation of the contract
  5. Statement prohibiting the investment adviser from assigning the contract without the customer’s consent
  6. Notification of any changes in the adviser’s management
  7. Limits on the adviser’s discretionary authority over the customer’s account, if any
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50
Q

NASAA allows state registered advisers to exercise discretion for how long? What happens after that?

A

10 business days from the date of the first transaction. After 10 business days written discretionary authorization must be received from the client prior to exercising further discretion.

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51
Q

What additional roles are considered as investment advisers (2) and are required to register as an investment adviser?

A
  1. Sports and entertainment representatives who advise clients on investments, where to invest, tax planning and budgeting
  2. Individuals who advise pension funds on the merits of portfolio managers or who act as pension consultants
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52
Q

When can a private investment company/3C7 fund charge performance-based compensation to clients?

A

If the clients have a minimum of $1M of assets under the adviser’s management or have a net worth of $2M. Corporations with $25M in assets and individuals with at least $5M in investments also may participate.

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53
Q

What is a fulcrum fee?

A

Provides the adviser with additional compensation for outperforming a broad-based index such as the S&P 500 and less compensation for underperforming the index.

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54
Q

Who can charge fulcrum fees?

A

Advisers, who manage accounts for investment companies or accounts with a value greater than $1M (if those accounts are not for trust or retirement plans)

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55
Q

What is a wrap account?

A

An account that charges one fee for both the advice received as well as the cost of the transaction.

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56
Q

What must all clients who open wrap amounts be given?

A

The wrap account brochure known as schedule H that will provide all of the information that is found on Form ADV Part 2.

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57
Q

Who must be registered as investment advisers related to wrap accounts? What about investment adviser representatives?

A

Broker dealers who offer wrap accounts – need to be registered as investment advisers
Individuals who receive fee-based compensation generated by wrap fee programs – must be registered as investment adviser representatives.

58
Q

What are soft dollars?

A

Services offered by brokerage firms to assist the investment adviser in their business that go beyond execution and research that are provided in exchange for commission business.

59
Q

What is a requirement in order for the soft dollar arrangement to be included in the safe harbor provisions?

A

Investment advisers must ensure that the services received are for the benefit of the client and need to pay careful attention to the disclosure requirements relating to all soft dollar arrangements.

60
Q

What must be done if adviser receives soft dollar compensation from a broker dealer to whom the adviser directs customer transactions? What is this known as?

A

Must disclose any arrangement to clients; this is known as directed transactions.

61
Q

Where can client consent for soft dollar compensation be obtained (2)?

A

Separate authorization or as part of adviser’s form ADV disclosure

62
Q

What must the disclosure on form ADV include (3)?

A

A list of the products and services provided to the adviser, the process the adviser use to allocate customer order execution and if the fees being paid are higher than they otherwise would be.

63
Q

All securities that are sold to state residents need to be one of what three things?

A
  1. Properly registered OR
  2. Exempt from registration OR
  3. Sold through an exemption transaction
64
Q

What are exempt securities? What 2 things do exempt securities include?

A

Securities that are exempt from the registration requirements of the Securities Act of 1933. These are not exempt from the antifraud provisions of the USA. Exempt securities are:

  1. Issued by exempt issuers, such as governments
  2. Short term debt instruments with less than 270 days to maturity
65
Q

How do you register a security?

A

Nonexempt securities become federally registered by submitting a registration statement to the SEC

66
Q

Where do nonexempt securities need to register?

A

Must register in the states in which the securities will be sold.

67
Q

What are the 3 methods of registering securities in a state?

A
  1. Coordination
  2. Notice filing
  3. Qualification
68
Q

When does a company file a registration statement through coordination?

A

When a company first sells stock to the public during an initial public offering (IPO), the company must file a registration statement with the SEC and must file documents with the state securities administrator in the states where the issue will be sold. Most IPOs will register with the state securities administrator at the same time that they are registering with the SEC (this simultaneous registration is known as coordination).

69
Q

What needs to be submitted to the administrator (6)?

A
  1. Copies of the prospectus
  2. Any amendments to the prospectus
  3. Amount of the securities to be offered within the state
  4. List of other states where the securities will be offered
  5. Consent to service of process
  6. Other information as required by the state securities administrator including the corporate bylaws, articles of incorporation, specimen of the security and indenture of any kind
70
Q

What conditions must be met for the security state registration to become effective at the same time the federal registration takes effect?

A

As long as no stop order has been issued and the documents have been on file with the state for a minimum of days (usually 10-20 days). State cannot become effective before federal.

71
Q

What must be submitted in a registration through notice filing (7)?

A
  1. Issuer’s name and address
  2. Type or organization
  3. Description of the securities to be offered
  4. Copy of the prospectus
  5. Copy of documents filed with the SEC
  6. Consent to service of process
  7. State fee
72
Q

When does a security need to register through qualification?

A

When issuers do not meet requirements for registering through notice filing and are not an IPO. Securities of issuers that will be sold only in one state through an intrastate offering will also be registered through qualification.

73
Q

How long is registration effective for all types of securities?

A

Up to one year from the effective date or until all securities have been sold, whichever is longer.

74
Q

Who sets filing fees for all types of securities registrations?

A

State securities administrators

75
Q

What is the rule for amendment of size of the offering for all types of securities registration?

A

The registration statement may be amended after its effective date to increase the size of the offering as long as the price and underwriter’s compensation remains unchanged.

76
Q

What can the administrator require (1) and not require (1) from all types of securities registration?

A

Administrator may require issuer to report on the progress of the sale of the security, may not require issuer to file reports more often than quarterly.

77
Q

What 2 rules apply to registration through coordination and qualification?

A
  1. State securities administrators may require that the proceeds from the offering be held in escrow until a certain amount has been sold
  2. The administrator may require that the securities be sold on a specific subscription form
78
Q

What does the National Securities Market Improvement Act of 1996 provide for securities that have met stringent listing requirements of any US stock exchange including Nasdaq stock exchange?

A

Provided federally covered exemptions for these securities (Issuer whose common stock is listed on a centralized US stock exchange such as NYSE or Nasdaq is provided an exemption for all of its securities, regardless of their type).

79
Q

Who are state registration exemptions also provided to (8)?

A
  1. Securities that are sold exclusively to qualified purchasers
  2. Investment company securities
  3. Securities and transactions exempt from federal registration
  4. Debt securities with maturities of less than 270 days and sold in denominations of $50K or more
  5. Exempt issuers
  6. Employee benefit plans
  7. Option contracts, both puts and calls on stocks and indexes
  8. Equipment trust securities issued by a federally covered or exempt issuer
80
Q

Certain securities are exempt from state registration and sales literature requirements because issuer is exempt. Who are examples of exempt issuers (11)?

A
  1. US government
  2. State and municipal governments
  3. Foreign national governments
  4. Canadian federal and municipal governments
  5. Insurance companies
  6. Banks and trusts
  7. Credit unions and savings and loans
  8. Common carriers (railroad, trucking and airlines) who are subject to the Interstate Commerce Commission
  9. Religious and charitable organizations
  10. Public utility securities
  11. Securities issued by a cooperative
81
Q

What sometimes makes a security exempt from state registration?

A

The type of transaction involved.

82
Q

What is private placement/Regulation D offerings?

A

Sale of securities that is made to a group of accredited investors (and higher net worth individuals and institutions) and the securities are not offered to the general public.

83
Q

Who do accredited investors include (3)?

A

Institutional investors and individuals who:

  1. Earn at least $200K per year if single OR
  2. Earn at least $300K jointly with a spouse OR
  3. Have a net worth of at least $1M excluding primary residence
84
Q

What are sales to nonaccredited investors limited to?

A

Limited to 10 in any 12-month period

85
Q

What are the limits on the amount of money that may be raised under various regulation D offerings (3)?

A
  1. Regulation 504 D allows issuers to raise up to $1M
  2. Regulation 505 D allows issuers to raise between $1M-$5M
  3. Regulation 506 D allows issuers to raise an unlimited amount of capital
86
Q

What is Rule 144? What does it designate (4)?

A

Regulates how control of restricted securities may be sold. Rule 144 designates:

  1. The holding period for the security
  2. The amount of the security that may be sold
  3. Filing procedures
  4. Method of sale
87
Q

Who are control securities owned by?

A

Officers, directors and owners of 10% or more of the company’s outstanding stock.

88
Q

How can control stock be obtained?

A

By insiders through open-market purchases or through the exercise of company stock options. (There is no holding period for control securities, however insiders are not allowed to earn a short swing profit through the purchase and sale of control stock in the open market)

89
Q

What happens if control securities were held less than 6 months?

A

Insider must return any profit to the company

90
Q

How can restricted securities be purchased?

A

By both insiders and investors through a private placement or through a be obtained through an offering other than a public sale.

91
Q

What must securities obtained through a private placement or other nonpublic means need to do?

A

Need to be sold under Rule 144 to allow the transfer of ownership

92
Q

What are the volume limits Rule 144 sets for both restricted and control stock during any 90 day period (2)?

A

Seller must file Form 144 at the time the order is entered and is limited to the greater of

  1. The average weekly trading volume for the preceding 4 weeks OR
  2. 1% of the issuer’s total outstanding stock
93
Q

When does Form 144 not need to be filed?

A

For order for 5K shares or less that do not exceed $50K.

94
Q

What happens to estate if owner of restricted stock dies?

A

May sell the share freely without regard to the holding period or volume limitations of Rule 144.

95
Q

What is Rule 147?

A

Rule 147 pertains to offerings of securities that are limited to one state – because offering is being made only in one state, it is exempt from registration with the SEC and is subject to jurisdiction of the state securities administrator.

96
Q

In order to qualify for an exemption from SEC registration under Rule 147, the issue must meet what criteria (7)?

A
  1. Issuer must have its headquarters in that state.
  2. 80% of issuer’s income must be received in that state
  3. 80% of offering’s proceeds must be used in that state
  4. 80% of issuer’s assets must be locate in that state
  5. 100% of purchasers must be located in that state
  6. Purchasers must agree not to resell the securities to an out of state resident for 9 months
  7. If the issuer is using an underwriter, the broker dealer must have an office in that state
97
Q

What are exempt (10)?

A
  1. Transactions with financial institutions
  2. Transactions with fiduciaries
  3. Transactions with underwriters –
  4. Orders executed through broker dealer at sole request of the customer (these are considered unsolicited orders and the securities if not registered within the state are exempt from registration)
  5. Transactions in mortgage-backed securities
  6. Pledges – Should a person pledge securities as collateral for a loan, pledge does not constitute a sale
  7. Offers to existing security holders
  8. Preorganization Certificates
  9. Isolated nonissuer transactions
  10. Nonissuer transactions
98
Q

Transactions with financial institutions are exempt, who do these include (5)?

A
  1. Banks
  2. Insurance companies
  3. Investment companies
  4. Broker dealers
  5. Pension plans with at least $1M in assets
99
Q

Who counts as fiduciaries (6) and what are the transactions exempt from?

A
  1. Trustees
  2. Executors
  3. Guardians
  4. Sheriffs/marshals
  5. Administrators
  6. Receivers
    Exempt from registration with the administrator
100
Q

What are transactions with underwriters exempt from?

A

Exempt from state registration

101
Q

What might an administrator require for unsolicited orders to prove it qualifies for exemption from registration?

A

May require proof that order was unsolicited and may require that customer sign an acknowledgement to that fact

102
Q

Transactions in mortgage-backed securities are exempt as long as what?

A

As long as the entire mortgage or deed of trust is sold as a unit in the transaction

103
Q

Transactions that are offers to existing holders include what (3)?

A
  1. Convertible securities
  2. Nontransferable warrants
  3. Transferable warrants exercisable within 90 days
104
Q

What is a preorganization certificate?

A

An agreement to purchase securities prior to the formation of a corporation.

105
Q

Preorganization certificates are exempt as long as what?

A

As long as no commission was received for soliciting the sale, the number of subscribers may not exceed 10 and subscriber may not make any payments.

106
Q

What is an isolated nonissuer transaction?

A

It means one or very few are performed per year per broker dealer, the number of transactions that qualifies as isolated transactions varies from state to state.

107
Q

What is a nonissuer transaction? What requirements does it need to meet (3) to be exempt?

A

Transaction of publicly traded securities and is exempt if the issuer meetings following requirements:

  1. The issuer has securities registered under Section 12 of the Securities Exchange Act of 1934 and has been reporting for at least 180 days OR
  2. The issuer has securities registered under the Investment Company Act of 1940 OR
  3. The issuer has filed the information required by the Securities Exchange Act of 1934 with the administrator for at least 180 days prior to the transaction.
108
Q

What does the state securities administrator do (3)?

A
  1. Has authority to enforce all of the provisions of the USA within their state
  2. May deny, revoke, or suspend the registration of a security, an agent, or a firm.
  3. May also revoke an exemption from registration, subpoena and investigate any registrant and amend rules as required.
109
Q

T/F: The administrator’s rules and orders become part of the USA?

A

False – do not become rules and orders, but have same authority as any part of the USA.

110
Q

What is the North America Securities Administrators Association?

A

Body of state regulators each of whom is responsible for administering the provisions of the USA within their state. Together they make up an advisory committee that refine and amend the USA through the adoption of module rules and policy statements.

111
Q

What are the testable concepts relating to NASAA’s model rules and policy statements (5)?

A
  1. Policy statement detailing dishonest and unethical business practices of broker dealers and agents
  2. Policy statement relating to dishonest sales practices relating to the sale of investment company products by broker dealers and agents
  3. Policy statement detailing requirements for broker dealers conducting business on the premises of other financial (banking) institutions
  4. Model Rule covering unethical business practices of investment advisers
  5. Model rule detailing requirements for investment advisers who maintain custody of client funds
112
Q

When can the state securities administrator take action to bar, suspend, censure or restrict the activities of a registrant if found to be in public’s best interest? (13)

A
  1. Fails to pay filing fees
  2. Is insolvent
  3. Fails to supervise employees
  4. Willfully violates the securities or banking laws of another country or has had a foreign regulator deny, revoke, or suspend its registration within the last 5 years
  5. Violates federal securities or commodities laws
  6. Has been convicted of any felony within the last 10 years
  7. Has been convicted of a securities-related misdemeanor
  8. Willfully violates any provision of the USA
  9. Files an incomplete, false, or misleading application for registration
  10. Has been temporarily or permanently enjoined from the securities business by a court of law
  11. Has been subject to an order by a state securities administrator denying, revoking, or suspending its registration
  12. Is deemed unqualified due to a lack of experience, training of knowledge,
  13. Engages in unethical or dishonest business practices
113
Q

If an administrator is going to take action against an applicant, what must it do?

A

It must notify them promptly in writing of their intention and must provide a hearing for the applicant within 15 days of receiving the request for a hearing.

114
Q

When can the administrator cancel the registration of a broker dealer, investment adviser, or an agent?

A

If the registrant or applicant no longer exists, has ceased doing business, or cannot be located. Can also be canceled if individual is deemed mentally incompetent by a court of law

115
Q

When does a withdrawal of a registration occur?

A

A broker dealer, investment adviser, or an agent may request that their registration with the state be withdrawn. The withdrawal will become effective 30 days after the administrator receives the request if no revocation or suspension proceedings are in process.

116
Q

How long does the administrator have after withdrawal of an applicant’s registration to take action against the applicant to suspend or revoke their registration?

A

1 year

117
Q

When can the administrator deny, revoke or suspend the registration of a security (5)?

A

If it is deemed in the public interest and:

  1. Any officer or director has been convicted of a securities crime
  2. The registration statement is false, misleading or incomplete
  3. The security is subject to a court injunction
  4. Promoter’s fees or offering expenses are excessive or unreasonable
  5. The offering is fraudulent
118
Q

How long can an order be appealed to the court system if an administrator’s order change is not liked by an aggrieved party?

A

Within 60 days

119
Q

What is a summary order?

A

If an administrator enters an order against a registered firm agent or security without holding a hearing.

120
Q

When can a summary order be issued? (3)

A
  1. To deny or revoke the exemption from registration of a security or transaction
  2. To postpone or suspend the registration of an agent during an investigation of a potential violation or registration issue pending a final decision
  3. To postpone or suspend the registration of a security during an investigation of a potential violation or registration issue pending a final decision
121
Q

What must administrator do if they enter an order on a summary basis?

A
  1. Must send notice to all parties against whom order was entered
  2. Notice must provide the details of the order as well as the reasons for entering the order
  3. Parties must also be notified that a hearing will be granted within 15 days of receipt of a written request
  4. Once order becomes final – administrator must provide a detail of all facts that lead to the order and the legal basis for the order (no order may become final without prior written notice and opportunity for a hearing)
122
Q

How long can an appeal be made to the court system of the administrator’s order?

A

60 days.

123
Q

What is a stop order?

A

A stop order is an administrative order taken against an issuer or security which stops the security from being sold in the administrator’s state.

124
Q

What is a cease and desist order?

A

An order against a person or firm who is engaging in or about to engage in an activity the administrator deems unacceptable.

125
Q

The state securities administrator will maintain all records of the business, what do these records include? (6)

A
  1. All applications for broker dealer registration
  2. All applications for investment adviser registration
  3. All applications for agent registration for broker dealers and investment advisers
  4. All applications for registrations of securities and registration statements
  5. All orders, actions, and interpretive opinions entered
  6. All written claims for exemptions from registration
126
Q

What does the state securities administrator have authority over in regards to investigations?

A
  1. Can investigate a broker dealer, a state investment adviser, or an agent in any state if they feel that a violation has taken or may take place
  2. May also subpoena people, books, and records in any state
  3. May administer oaths to compel people to testify
127
Q

What happens to anyone who displays contempt for the administrator’s order?

A

Guilty of contumacy and may be found in contempt of court if the administrator asks the court to enforce its orders.

128
Q

What is penalty for someone who has knowingly and willfully criminally violated the laws of the USA?

A

Subject to $5K fine and/or 3 years in prison.

129
Q

What is penalty for people who criminally violate the Investment Advisers Act of 1940?

A

Subject to a $10K fine and/or five years in prison

130
Q

What is an investor who sues for a violation of the USA entitled to receive? (3)

A
  1. The value that they paid for the securities minus any income received during the holding period (for example, dividends)
  2. Interest on their money for the holding period
  3. Court costs
131
Q

Civil actions can me taken against what 3 entities?

A
  1. An agent
  2. A firm
  3. The agent’s supervisor
132
Q

If an investment adviser violates the provisions of the USA, clients may sue to recover what (4)?

A
  1. Advisory fees
  2. Losses
  3. Interest on the money
  4. Attorney fees and court costs, minus any income received as a result of the advice
133
Q

What are the jurisdiction powers granted to the administrator under the USA (7)?

A
  1. Cancel, deny, suspend or revoke a registration of an agent, firm, or security
  2. Cancel, deny, suspend or revoke an exemption from registration of an agent, firm, or security
  3. Conduct investigations
  4. Issue subpoenas
  5. Issue cease and desist orders
  6. Seek injunctions
  7. Amend, make, and rescind rules and orders
134
Q

What security transactions (3) does the state securities administrator have jurisdiction over?

A

Security transactions that:

  1. Originated within their state
  2. Are directed into their state
  3. Are accepted in their state
135
Q

The securities administrator also has jurisdiction over offers of securities that (2)

A
  1. Originated within their state

2. Are directed into their state

136
Q

What type of security also constitutes an offer or sale of a security?

A

An offer or sale of a security that may be converted or exchanged into another security

137
Q

When will an advisement, offer, or solicitation have been made outside jurisdiction of a state securities administrator (3)?

A

If the following conditions are met:

  1. The tv broadcast originated outside the administrator’s state
  2. The newspaper or periodical was published outside the administrator’s state
  3. The newspaper or periodical was published inside the state but 2/3 of its circulation is outside of the state of publication
138
Q

What is the right of rescission?

A

IF a seller of a security determines that they have made a sale of securities that violates any provision of the USA, they may offer the affected parties rescission (must be in writing and include an agreement to repurchase the securities at the original purchase price and must include interest for the time period that the money was invested).

139
Q

What happens if buyer does not accept offer of rescission within 30 days?

A

Seller has no further liability with regard to the sale of those securities and the buyer forfeits their right to sue.

140
Q

An investor’s acknowledgement that a sale is in violation of the USA is valid or not valid?

A

Not valid

141
Q

What is statute of limitations?

A

If a buyer of a security finds that sale of the security violates any of the provisions of the USA, the purchaser has 2 years from discovery of the violation or 3 years from the purchase date, whichever comes first, to take action

Series 65 (7 decks)

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