Unit 9 Flashcards

Question

Accredited investor

Answer 1

Found in Rule 501 of the Act of 1933 A person who is not counted when computing the number of investors purchasing a private placement under Regulation D of Act of 1933 Term includes institutional investors such as banks, insurance companies, investment companies and large EB plans; charitable organizations; corporations; or partnerships

Answer 2

For natural persons (individuals), 3 ways to qualify • Be a director, executive level officer or general partner of the entity issuing the securities • Have individual net worth (spouse included) of $not including primary residence • Having income >$200,000 in each of the 2 most recent years, joint income of $300,000, and expect to earn the same thing in the current year

Answer 3

Securities professionals (B/Ds, IAs, agents, IARs), or securities issuers, who are in the process of, or who have registered with the Administrator

Answer 4

Banks, trust companies, S&L associations, insurance companies, EB plans with assets >$1 million, government agencies and instrumentalities. The Act generally affords less protection to these investors owing to their greater investment sophistication

Answer 5

The term institution would include banks, trust companies, S&L associations, insurance companies, EB plans with assets >$1 million, and government agencies or instrumentalities

Answer 6

USA generally affords less protection to institutional investors owing to their great investment sophistication

Answer 7

Not an institutional client. Retail clients need far more protection than institutional clients.

Answer 8

Individuals who meet the standard of accredited investor are still considered retail clients rather than institutional clients

Answer 9

Enacted by Congress to promote efficiency in capital formation in the financial markets Generally preempts states’ blue-sky laws, eliminating the dual system of state and federal registration of certain securities and investment advisers

Answer 10

State means any of the 50 states, any territory of the US (e.g. DC, PR, Samoa, Guam, etc.)

Answer 11

Exclusion means excluded from, or not included in, a definition. For the purpose of the USA, if a person is excluded from the definition of an agent, that person is not subject to provisions of state law that referred to agents.

Answer 12

* Broker/dealers – generally legal persons, such as corporations or partnerships * Agents – always individuals (natural persons) * Investment advisers – generally legal persons, such as corporations or partnerships * Investment adviser representatives – always individuals (natural persons

Answer 13

Always keep in mind which of the 4 categories of persons is the subject of the question. Rules that apply to agents, for example, are not the same as those that apply to B/Ds.

Answer 14

Defined in the USA as any person engaged in the business of each effecting transactions in securities for the accounts of others or for its own account Firms for which registered reps (agents) work

Answer 15

Any person within established place of business in the state (office) that is in the business of buying and selling securities for the accounts of others (customers) and/or for its own proprietary account is a broker/dealer and must register in the state as such

Answer 16

When acting on behalf of their customers - that is, buying and selling securities for their clients’ accounts - broker/dealers act in an agency capacity

Answer 17

When buying and selling securities for their own accounts, called proprietary accounts, they act in a principal capacity as dealers

Answer 18

When B/Ds do this, they generally earn the spread (the difference between the public offering price and what they pay the issuer) or receive a commission on the sales, which they then used to pay their agents who actually made the sales to the clients

Answer 19

Persons not included in the definition of broker/dealer are: • agents; • issuers; and • banks, savings institutions, and trust companies (not engaged in broker/dealer activities)

Answer 20

Federal securities law adopted a functional approach to the regulation of financial institutions Financial institutions that engage in brokerage-related activities are subject to SEC registration as B/Ds as well to applicable provisions of state securities laws – that relate to B/Ds B/D subsidiaries of banks are not excluded although the bank holding company may be excluded

Answer 21

States exclude from the definition of B/D those B/Ds that: • Have no place of business in the state and deal exclusively with issuers, other B/Ds, and other financial institutions (banks, S&Ls, trust companies, insurance companies, investment companies, and pension or profit-sharing trusts • have no place of business in the state, that are licensed in the 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 who are not residents of the state. This is sometimes referred to as the Snowbird exemption and applies as well to agents, investment advisors, and investment advisor Representatives

Answer 22

* the USA house broker/dealers to do business with existing customers who were temporarily state to avoid unnecessary multiple registrations * in most states, when an existing client lead changes residence to another state in which the broker/dealer in parentheses and/or the agent) is not registered, the firm (and/or agent) has 30 days during which it may continue to do business with that on without registration and the new state * should it wish to continue to maintain that client, the B/D (and/or agent) would have to register in that state

Answer 23

Communication clearly states that the person may only do business in this state if properly registered or exempt from registration Any follow-up individualized responses won’t be made without compliance state B/D, IA, agent, or IA requirements, or applicable exemption or exclusion Site makes only general info available, not specific advice or recommendations In case of IAR- Affiliation with B/D or IA of the agent is prominently disclosed B/D or IA with whom the agent or IAR is associated retains reviewing & approval responsibility B/D of the agent or IAR authorizes the distribution of the info through the Internet Communication Agent or IAR acts within scope of authority granted by the B/D in disseminating info through Internet Communication

Answer 24

If any material information on the Form B/D becomes inaccurate, PROMPT notice must be given to the Administrator

Answer 25

Net capital requirements is the B/D’s liquid net worth Requirement may not exceed those required by federal law (Sec. Exc. Act of 1934) State may require that B/Ds who have custody of or discretionary authority over clients’ funds to post surety bonds. Surety bond requirement cannot exceed that of the Sec. Exc. Act of 1934) In lieu of a surety bond, the Administrator will accept deposits of cash or securities

Answer 26

USA defines agent as any individual who represents a B/D (legal entity) or issuer (legal entity) in effecting (or attempting to effect) transactions in securities Act in a sales capacity and represent B/Ds or issuers of securities Also called sales representatives or registered representatives Only an individual (natural person) can be an agent Corporations like brokerage firms are legal entities and are represented by agents

Answer 27

Clerical and administrative (ministerial personnel) EEs of B/Ds

Answer 28

* If secretaries or sales assistants accept customer transactions or take orders over the phone, they are engaging in securities transactions and are subject to registration as agents * Cold callers working for a B/D have to register as an agent if they do any more than ask if clients want to receive info

Answer 29

Individuals are excluded from the definition of agent and, therefore, are exempt from registration in a state when representing issuers in effecting transactions: In exempt securities; Exempt from registration; and With existing EEs, partners, or directors of the issuer if no commission or other remuneration is paid or given directly or indirectly for soliciting any person in this state

Answer 30

Securities exempt from registration are called exempt securities An EE of an issuer is not an agent when representing an issuer of the following exempt securities: US government an municipal securities Securities of governments with which the US has diplomatic relationships Securities of US commercial banks and savings institutions or trust companies (when not engaged in securities-related B/D activities Commercial paper rated in the top 3 categories by major ratings agencies with denominations of $50,000 or more with maturities < 9 months

Answer 31

An EE of an issuer is not an agent when representing an issuer in exempt transactions. Some examples are: Isolated non-issuer transactions; Transactions between issuers and underwriters; Transactions with financial institutions; and Private placement

Answer 32

Must file Form U-4 | On Form U-4, applicant must disclose citizenship

Answer 33

When an agent shifts employment from one B/D or issuer to another, all three persons – the agent, the old ER, and the new ER – must promptly notify the Administrator

Answer 34

There are none

Answer 35

Registered agents of B/Ds may shares fees or split commissions with others from the same B/D or under B/Ds under common ownership or control They do not have to disclose the split to their clients

Answer 36

An individual can’t act for > 1 B/D at a time or for > 1 issuer unless the B/Ds are affiliated by common control or the Administrator grants an exception

Answer 37

If B/D has no office in state, it may effect transactions or solicit if: A person from Canada is a temporary resident and an existing client of the B/D A person from Canada who is a resident in the state whose transaction is in a self-directed tax-advantaged Canadian retirement plan of which the person is the holder or contributor Registered Retirement Savings Plan (RRSP)

Answer 38

The Canadian equivalent of an IRA

Answer 39

EEs who represent an issuer of exempt securities (e.g. a bank) in selling its securities is not an agent regardless of how they are compensated

Answer 40

Persons must be registered as agents when they effect transactions on behalf of the B/D whether or not the securities are exempt

Answer 41

Any individual taking orders on behalf of a B/D must be registered whether or not they receive a commission

Answer 42

A person who represents an ER in selling securities is not an agent regardless of how they are compensated

Answer 43

Any person who, for compensation and as a part of a regular business, engages in the business of advising others as to the value of securities, or as to the advisability of investing in or selling them

Answer 44

Advice given on investments not defined as securities (rare coins, art, and real estate) is not investment advice covered by the USA or other securities legislation Persons giving advice on non-USA investments are not investment advisers

Answer 45

To be an investment adviser under both state and federal securities law, a person must: Provide advice about securities (not about jewelry, rare coins, or real estate); Provide that advice as a part of an ongoing business (hang out a shingle and have an office for conducting business); and Receive compensation (actually get paid for the service)

Answer 46

In most cases, IAs are persons (legal entities) that provide advice or portfolio management services on an ongoing basis. IARs work for IAs, just as RRs work for B/Ds An individual can be an IA if he operates as a sole proprietorship and is registered as both an investment adviser and the only IAR of the business

Answer 47

Any individual who represents a state-registered IA or federal covered investment adviser performing duties related to the giving of or soliciting for advisory services

Answer 48

Primary business function is executing transactions in securities Compensation is earned in the form of commissions and markups (or markdowns)

Answer 49

Primary business function is giving advice | Compensation is earned in the form of fees or other charges, generally based on the amount of assets managed

Answer 50

Individuals employed by B/Ds to handle their customer orders to buy or sell securities Separate function from an IAR (although many in large firms wear both hats)

Answer 51

Individuals employed by investment advisers to give advice to their clients After an IAR advises a client about a specific security, the next step is to contact the B/D where that client maintains a brokerage account to give the buy/sell order to an agent

Answer 52

To register with the state securities Administrator, a person must: Submit an application; Provide consent to service of process; Pay filing fees; Post a bond (if required by the Administrator); and Take and pass an examination if required by the Administrator. The examination may be written, oral, or both

Answer 53

Fingerprints are not required

Answer 54

If an agent terminates with a B/D, both parties must notify the Administrator promptly If an agent terminates with one B/D to join another, all 3 parties must notify the Administrator One way to remember- in the case of an agent, the first letter A, tells us that all the parties involved must notify the administrator

Answer 55

New applicants for registration must provide the Administrator of every state in which they intend to register with a consent to service of process

Answer 56

Appoints the Administrator as the applicant’s attorney to receive and process noncriminal securities- related complaints against the applicant All legal documents (subpoenas, warrants, etc.) received by the Administrator have the same legal effect as if they had been served personally on the applicant

Answer 57

Consent to service of process is submitted with the initial application and remains in force permanently. It does not need to be supplied with each renewal of a registration If a securities professional is registering in 6 states, the Administrator of each state must receive a consent to service of process

Answer 58

States require filing fees for initial and renewal applications If application is withdrawn or denied, the state keeps a portion of the fee The renewal date for all registrations is 12/31 and there is no proration of fees

Answer 59

Unless notified otherwise, registration is effective 30 days after the later of when the application is filed or when the app is amended and complete

Answer 60

The Administrator has the power to shorten the normal 30 period

Answer 61

In order to do business with their Canadian customers who are temporarily in any state(s), Canadian B/Ds must obtain a form of limited registration

Answer 62

* Every registered B/D must make and keep accounts, blotters (records of original entry), correspondence (including emails), memoranda, papers, books, and other records ass the state Administrator by rule prescribes * All records so required must be preserved for 3 years (2 in the main office) unless the Admin says otherwise * State’s recordkeeping requirements cannot be > SEC

Answer 63

Treated as any other advertisement- 3 years | When revisions made, new retention requirements for that piece

Answer 64

USA only applies to financial instruments that are securities Primary characteristics of a security: • An investment of money • In a common enterprise • With the expectation of profits • Derived primarily from a person other than the investor

Answer 65

Enterprise in which the fortunes of the investor are interwoven with those of either the person offering the investment, a third party or other investors

Answer 66

Notes; stocks; treasury stocks; bonds; debentures; evidence of indebtedness; CDs or participation in a profit-sharing agreement; collateral trust certificates; pre-organization certificates or subscriptions; transferable shares; investment contracts; voting trust certificates; CDs for a security; fractional undivided shares in oil, gas, or other mineral rights; puts, calls, straddles, options, or privileges on a security; CDs or groups of indexes or securities, puts, calls, straddles, options, privileges entered into on a national securities exchange relating to foreign currency; any interest or instrument commonly known as a security; or CDs or participation in, receipts of, guarantees of, or warrants or rights to subscribe to, or purchase, any of the above

Answer 67

Any insurance that does not use the word variable; interest in a retirement plan (ITA, Keogh, etc.); collectibles; commodities; condominiums; currency

Answer 68

Non-exempt means not subject to registration Exempt means subject to registration The sale of an unregistered non-exempt security is a prohibited practice under the USA and may be subject to civil and possibly criminal penalties

Answer 69

Any person who issues (distributes) or proposes to issue a security Most common issuers of securities are companies or governments

Answer 70

Under the USA, certificates of interest; participation in oil, gas, or mining titles or leases; or in payments out of production under such titles or leases, there is not considered to be any issuer

Answer 71

If an issuer is non-exempt, it must generally register its securities in the states where they will be sold under one of the registration methods in Unit 9

Answer 72

The proceeds of the sale go to the issuer All newly issued securities are issuer transactions. The company raises $ by selling [issuing] securities to investors, the proceeds go to the company itself

Answer 73

The proceeds of the sale do not go, directly or indirectly, to the entity that originally offered the securities to the public. (E.g. trading on exchanges like NYSE or NASDAQ. Secondary trading Non-issuer transactions are also referred to as 2ndary transactions

Answer 74

Issuer transaction involving new securities

Answer 75

1st time an issuer distributes securities to the public

Answer 76

Any subsequent issuance of new shares to the public All primary offerings, IPOs and SPOs are issuer transactions because the issuer receives the proceeds from the investor investing in the company

Answer 77

When investors purchase open-end investment company shares, it is always issuer transaction because the fund is continuously offering new shares When the investment company sells shares out of its portfolio, that is a non-issuer in the 2ndary markets

Answer 78

Commodity futures contracts and fixed payment life insurance contracts are included in our list of 6 items that are not securities Commodity option contracts are securities

Answer 79

Are usually required to be registered, but not always | If the non-exempt security is sold in an exempt transaction, registration may not be required

Answer 80

It is unlawful for any person to sell a security unless: It is registered under the USA The security or transaction is exempted from registration under the USA It is a federal covered security

Answer 81

Divided the responsibility for regulating IAs between the states and the SEC by creating the category of registration known as a federal covered adviser NSMIA also created the term federal covered security

Answer 82

A security that is exempt from registration on a state level States may still require Notice Filings, consisting of filing fees and copies of documents filed with the SEC, primarily in the case of registered investment companies

Answer 83

* Securities issued by an open-end or closed-end investment company, UIT, FIC, that are registered under the Investment Act of 1940 * Private placements (securities pursuant to Rule 506 of Regulation D under Act of 1933) * Securities offered by a US government issuer or a municipal issuer, unless the municipal issuer is located in the state in which the securities are being offered. * Securities listed on NYSE, ASE, Nasdaq, and several other US exchanges

Answer 84

Registering a security with the SEC does not automatically make it federal covered Investment companies and securities listed on exchanges and Nasdaq are automatically federal covered Thousands of stocks registered with the SEC that trade on the OTC Bulletin Board or the Pink Sheets and they are not federal covered

Answer 85

Status as a federal covered security is not a preemption of the state licensing or anti-fraud laws Any person who sells a federal covered security must be licensed as a B/D or agent (unless otherwise exempted) and must also comply with the anti-fraud provisions of state laws

Answer 86

The USA provides 2 methods for securities issuers to register their securities in a state, plus a special method for certain federal covered securities: Notice filing; Coordination; and Qualification

Answer 87

The Administrator may require the issuer of certain federal covered securities to file the following documents as a condition for sale of their securities in the state: • Documents filed along with their registration statements filed with the SEC • Documents filed as amendments to the initial federal registration statement • A report as to the value of such securities offered in the state Consent to service in the process

Answer 88

The most common form of registration for securities that are not federal covered (typically OTC bulletin board & Pink Sheets securities) is coordination A security may be registered by coordination if a registration statement has been filed under the Act of 1933 in connection with the same offering

Answer 89

In coordinating a federal registration with state registration, issuers must supply the following records in addition to the consent to service of process: • Copies of the latest form of prospectus filed under the Act of 1933, if the Administrator requires it • Copy of articles of incorporation and bylaws, a copy of the underwriting agreement, or a specimen copy of the security • If the Administrator request, copies of any other information filed by the issuer under the Act of 1933 • Each amendment to the federal prospectus promptly after it is filed with the SEC

Answer 90

Registration by coordination becomes effective at the same time the federal registration becomes effective, provided: • No stop orders have been issued by the Administrator and no proceedings are pending against the issuer; • The registration has been on file for at least the minimum number of days specified by the Administrator, a number that currently ranges from 10 to 20 days, depending on the state; and • A statement of the maximum and minimum offering prices and underwriting discounts have been on file for 2 business days

Answer 91

Is by far the most frequently used method and, from a practical standpoint, is the only sensible way to register a multi-state offering

Answer 92

Any security can be registered by qualification, which requires a registrant to supply any information required by the state securities Administrator Securities not eligible for registration by another must be registered by qualification In addition, securities that will be sold in one state (intrastate) will be registered by qualification

Answer 93

To register by qualification, an issuer must supply a consent to service of process and the following information: • Name, address, form of organization, description of property, and nature of business • Information on directors and officers and every owner of >10% of the securities, and the remuneration paid to the owners in the last 12 months • Description of issuers’ capitalization and long-term debt • Estimated proceeds and the use to which the proceeds will be put • Type and amount of securities offered, offering price, and selling and underwriting costs • Stock options to be created in connection with the offering • Copy of any prospectus, pamphlet, circular, or sales literature to be used in the offering • Specimen copy of the security along with opinion of counsel as to the legality of the security being offered • Audited balance sheet current within 4 months of the offering with an income statement for 3 years before the balance sheet date

Answer 94

``` In order to register, even by notice filing, there must be a consent to service of process filed with the Administrator A person (both individuals and legal entities) who has filed such a consent in connection with a previous registration or notice filing need not file another ```

Answer 95

Unlike coordination, where the effective date is triggered by SEC acceptance of the registration, a registration by qualification becomes effective whenever the state Administrator so order

Answer 96

Regardless of the method used, every registration statement is effective for 1 year from its effective date Unlike agent & B/D registration, the date 12/31 is of no consequence Registration may continue in effect past the first anniversary if there are still some unsold shares remaining, as long as they are still being offered at the original public offering price by either the issuer or the underwriter

Answer 97

A registration statement may be amended after its effective date so as to increase the securities specified to be offered and sold if two conditions are met: The public offering price; and The underwriters’ discounts and commissions are not changed from the respective amounts stated in the original registration statement

Answer 98

A registration statement may be amended after its effective date to change the number of shares to be offered and sold if the public offering price and underwriter’s discounts and commissions are unchanged

Answer 99

Any company may register by qualification | Companies that are not established or that intend to offer their securities in one state register by qualification

Answer 100

Is exempt from the regulatory control of the state Administrator because of the manner in which a sale is made or because of the person to whom the sale is made A transaction is an action and must be judged by the merits of each instance

Answer 101

A security is exempt because of the nature of the issuer, not the purchaser

Answer 102

It is unlawful for any person to offer or sell any security in this state unless It registered under the USA; The security or transaction is exempted under the act; or It is a federal covered security

Answer 103

US & Canadian govt & municipal securities, foreign govt securities, depository securities, insurance company securities, public utility securities, federal covered securities, securities issued by nonprofit organizations, securities issued by cooperatives, securities of EB plans, certain money market instruments

Answer 104

Is not exempt from anti-fraud provisions of the USA

Answer 105

Before a security can be sold in a state, it must be registered unless exempt from registration, or traded in an exempt transaction

Answer 106

* Isolated non-issuer transactions (for sale by owner) – one individual selling stock to another in a one-on-one transaction exempt from the Administrator because the issuer is not receiving any of the proceeds, and the parties involved are not trading as part of a regular practice * Unsolicited brokerage transactions – the most common of the exempt transactions. Client calls a registered agent and asks to sell

Answer 107

* Underwriter transactions – transactions between issuer and underwriter; or between underwriters themselves (as part of a syndicate) * Bankruptcy, guardian, or conservator transactions – executor, administrator, sheriff, marshal, receiver, guardian, or trustee in bankruptcy are exempt transactions. UGMA & UTMA custodians are not exempt * Institutional investor transactions – primarily transactions with financial institutions such as banks, insurance companies, and investment companies, and there is no minimum order to define these trades

Answer 108

• Limited offering transactions – called a private placement, directed at ≤ 10 persons (called offerees) other than institutional investors during the previous 12 consecutive months provided that: o The seller believes that all of the non-institutional buyers are purchasing for investment purposes only o No commissions or other remuneration is paid for soliciting non-institutional investors o No general solicitation or advertising is used

Answer 109

Federal law – private placement rule restricts the # of purchasers USA – restricts the number of offers that may be made

Answer 110

Accredited investor – an investor who meets the accredited investor standards of Regulation D • Net worth > $1 million (excluding home) Only assets with spouse count, not other relatives • Income > $200,000 (or $300,000 with spouse) in each of previous 2 years & likely this year • THIS IS FEDERAL LAW & SHOULD NEVER BE ANSWERED AS A USA QUESTION

Answer 111

• An investor who manages large amounts of money for other people (e.g. mutual fund, insurance company, etc.)

Answer 112

The Administrator may deny any exempt transaction except: • Securities of non-profits • Investment contracts issued in connection with EB plan Under the USA, the burden of providing an exemption or an exception from a definition falls upon the person claiming it.

Answer 113

The person registering the securities

Answer 114

State Administrators require every issuer to supply the following information on their applications: • Amount of securities to be issued in the state • States in which the security is to be offered, but not the amounts offered in those other states • Any adverse order or judgment concerning the offering by regulatory authorities, court, or the SEC

Answer 115

Although most registration statements are filed by the issuer, the exam may require you to know that they may also be filed by any selling stockholder, such as an insider making a large block sale, or by a B/D

Answer 116

Issuer on whose behalf the offering is to be made must pay a filing fee, as determined by the Administrator which is often based on a % of the total offering price

Answer 117

Administrator may require the person who filed the registration statement to file reports

Answer 118

As a condition of registration, the Administrator may require that a security be placed in escrow if the security is issued: • Within the past 3 years • At a price substantially different than the offering price; or • To any person for a consideration other than cash

Answer 119

The Administrator may also require, as a require a condition of employment, that the issue be sold only on a form specified by the Administrator and that a copy of the form or subscription contract be filed with the Administrator or preserved for up to 3 years

Answer 120

Registration statement cannot be withdrawn

Answer 121

Apply only to securities (not to investments that are not considered securities) If inappropriate activity occurs during the offer and sale relating to something that is not a security, these anti-fraud provisions do not apply

Answer 122

* Inaccurate market quotations * Misstatements of an issuer’s earnings or projected earnings or dividends * Inaccurate statements regarding the amount of commissions, markup, or markdown

Answer 123

Other than when commissions are higher than normal, a B/D is not obligated to disclose the amount of commission on any offer to sell before the transaction. Commissions are always required to be disclosed on the trade confirmation

Answer 124

Every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security for value • Any security given or delivered with, or as a bonus on account of, a purchase of securities or anything else (a car, jewelry, and so forth) is considered to constitute part of the subject of the purchase and to have been offered and sold for value • A purported gift of assessable stock (stock issued below par) is considered to involve an offer and sale • A sale or offer of a warrant or right to purchase or subscribe to another security

Answer 125

When assessable stock is given as a gift, the Administrator has jurisdiction over the transaction because there is a potential future obligation in that either the issuer or, more likely creditors can demand payment for the balance of the par value

Answer 126

If an individual owned assessable stock and felt that the issuer was on the verge of bank

Answer 127

The terms sale or sell and offer or offer to sell do not include any: • Bona fide pledge or loan • Gift of non-assessable stock • Stock dividend (includes stock splits) • Class vote by stockholders to sell assets • Act incident to a judicially approved reorganization

Answer 128

Jurisdiction means the legal authority to regulate securities activities that take place in the state This means that the offer: • Originated in the Administrator’s state • Is directed to the Administrator’s state • Is accepted in the Administrator’s state

Answer 129

The Administrator does not have jurisdiction if the offer was made in: • A television or radio broadcast that originated outside of the state • A bona fide newspaper or periodical published outside of the state • A newspaper or periodical published inside the state, but with > 2/3 of its circulation outside of the state in the last year

Answer 130

* Make, amend, or rescind rules and orders; * Conduct investigations and issue subpoenas; * Issue, cease and desist orders and seek injunctions; and * Deny, suspend, cancel, or revoke registrations and licenses

Answer 131

* A rule or order of the Administrator has the same authority as a provision of the act itself, but these rules and orders are not part of the USA itself * Although the Administrator has the power to make and amend rules for compliance with his state’s blue-sky laws, he does not have the power to alter the law itself * The composition or content of state securities law is the responsibility of the state legislature and not its administrative agencies * Despite the latitude given him in administering the USA, the Administrator cannot suspend any provision of the USA itself

Answer 132

Must be made within 60 days of order issuance

Answer 133

* May be made in public or in private and may occur within or outside of the Administrator’s state * Normally open to the public * Can be in private when in the opinion of the Admin and with the consent of the parties, it is felt that a private investigation is more appropriate

Answer 134

Admin has the power to • Require statements in writing, under oath, as to all matters relating to the issue under investigation • Publish and make public the facts and circumstances concerning the issue to be investigated • Subpoena witnesses and compel their attendance and testimony • Take evidence and require the production of books, papers, correspondence, and any other documents deemed relevant

Answer 135

Refusal to obey a subpoena issued Admin can then apply to the appropriate court in his state and ask for help Failure to obey the order of the court can lead to contempt of court and jail time

Answer 136

Admin may enforce subpoenas of Admins from other states

Answer 137

The unethical practice of a B/D or one of its representatives placing a personal order ahead of a previously received customer order Occurs more frequently when the firm has received an institutional order of sufficient size to move the market By running in front of the order, the firm or rep can profit on that movement

Answer 138

Agents can share directly or indirectly in profits or losses in the account of any customer if they have written authorization of the customer & the B/D B/Ds, IAs, and IARs are never permitted to share in the profits or losses in their clients’ accounts

Answer 139

Administrator can issue a "cease and desist" order if they think something is fishy

Answer 140

A person who is the subject of an injunction

Answer 141

Cease and desist orders are directed to person, requiring them to cease activities Stop orders are directed to applications regarding registration of a security

Answer 142

Administrator cannot issue a formal order to suspend a registration without: Giving appropriate prior notice to the affected person; Granting an opportunity for a hearing; and Providing findings of fact and conclusions of law

Answer 143

Filing an incomplete, false, or misleading registration application Willfully violating the USA Securities-related misdemeanor within the last 10 years Any felony within the last 10 years

Answer 144

Enjoined by law from engaging in the securities business Subject to another Administrator’s denial, revocation, or suspension Engaged in dishonest or unethical securities practices Is insolvent

Answer 145

Subject of an adjudication that the B/D has willfully violated Act of 33, Act of 34, Investment Advisors Act of 40, Investment Company Act of 40, or Commodities Exchange Act Has failed to reasonably supervise his agents or EEs Has failed to pay application filing fees Is not qualified on the basis of training, lack of experience, and knowledge of the securities business

Answer 146

Because of a lack of uniformity in state criminal laws, Admin must consider crime under the statutes of the state where crime occurred, not his own Admin may only consider what is on the person’s record If a person is subject to disqualification by any SRO, even FINRA, for something that was not a violation of the USA, that would still be a cause for denial

Answer 147

The public’s best interest is not reason enough for the denial, suspension, or revocation of a registration. There must be a further reason Admin must notify the registrant of any reason to deny, suspend, revoke, or cancel a registration &, if asked in writing, must provide a hearing within 15 days If registrant is an agent or IAR, the employing B/D or IA will receive notice of the final order

Answer 148

Acting without having to go through the hearing process

Answer 149

An administrator may cancel the registration of a registrant that is no longer in existence. A person may request a withdrawal of a registration Withdrawals become effective after 30 days if there are no revocation or denial proceedings in process An Administrator does not revoke the registration of a person who is declared mentally incompetent but instead cancels his regisitration. This is a non-punitive action

Answer 150

Time limit for violations of civil provisions of USA is: 3 years from date of sale; or 2 years after discovering the violation, which comes first

Answer 151

If client’s case is proven, at the direction of the Administrator, client may recover: Cost of the advice; plus Loss as a result of the investment; plus Interest at a rate determined by the Administrator: plus Any reasonable attorney’s fees

Answer 152

If seller discovers that an improper sale has been made, he may offer to repurchase the securities from the buyer and avoid a legal costs, etc. through a letter of rescission Buyer has 30 days after receiving letter to respond by accepting or rejecting After 30 days, buyer gives up any right to pursue a lawsuit at a later date No provision here for treble damages (like with some federal laws)

Answer 153

Statute of limitations for criminal offenses under USA is 5 years from date of the offense

Answer 154

The deliberate or willful concealment, misrepresentation, or omission of material information or the truth to deceive or manipulate another person for unlawful or unfair gain. Under the USA, fraud is not limited to common-law deceit

Answer 155

5-5-3 5 year statute of limitations $5,000 maximum fine; and/or 3 years maximum imprisonment

Answer 156

Actual seller of securities or advice is not the only person liable for violations of the act Every person who directly or indirectly controls the person who sold the securities or advice or is a material aid to the transaction is liable to same extent unless that person could not have reasonably known

Answer 157

Any person affected by an order of the Administrator may obtain a review of the order in an appropriate court by filing a written petition within 60 days Filing an appeal does not automatically act as a stay of the penalty The order will go into effect as issued unless the court rules otherwise