Uniform Securities State Law Examination v1.0 (Series 63)

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Total 256 questions

Treadwater Bank and Trust is selling a portfolio of municipal bonds it owns to the SafeRisk Insurance Corporation. Under the Uniform Securities Act (USA), in this transaction Treadwater is defined as a

  • A. broker-dealer.
  • B. agent.
  • C. issuer.
  • D. none of the above.


Answer : D

Explanation: When Treadwater Bank and Trust sells municipal bonds it owns to SafeRisk, it does not meet the USA definition of a broker-dealer, an agent, or an issuer. As a bank, Treadwater is automatically excluded as a broker-dealer. Nor can Treadwater be defined as an agent since an agent can only be an individual.
Treadwater is not the issuer of the securities; the state and local governments that originally issued the securities are.

Under the Uniform Securities Act (USA), the term "investment adviser" does not apply to
I. an investment advisory firm owned and operated by a sole proprietor.
II. a bank or savings institution.
III. an investment adviser representative.
IV. a broker-dealer or its agents if the advice is incidental to the business although there is a nominal charge for any specific investment advice given.

  • A. I, II, III, or IV.
  • B. I, II, and III only.
  • C. II and III only.
  • D. II, III and IV only.


Answer : C

Explanation: The term "investment adviser" does not apply to Selections II or III. The term "investment adviser" does not apply to a bank or savings institution or to an investment adviser representative. Those persons are specifically excluded from the definition provided by the USA. Any investment advisory firm, regardless of whether it is owned and operated by a sole proprietor, is considered to be an investment adviser. A broker-dealer that charges for its investment advice, even if it claims that the advice is incidental to its business, would be considered an investment adviser due to the special remuneration the firm receives for its advisory services.

Which of the following statements regarding the registration of broker-dealers and investment advisers is true?

  • A. Investment advisers are required to register with both the state and the SEC, while broker-dealers may be registered with only one or the other.
  • B. Investment advisers must always be registered with the SEC to conduct business; broker-dealers may be registered with either an individual state or the SEC or both.
  • C. Investment advisers are required either to be registered with a state or with the SEC, while broker-dealers must be registered both with the SEC and the state.
  • D. Both investment advisers and broker-dealers must be registered with the SEC and with the states in which they have offices.


Answer : C

Explanation: The true statement is C: Investment advisers are required either to be registered with a state or with the SEC, but broker-dealers must be registered with both the SEC and the state. Investment advisers who are federal covered do not need to be registered with the state as well, but they do have to execute a notice filing with the Administrator of any state in which they have an office.

Under the Uniform Securities Act (USA), which of the following statements would be disallowed?

  • A. The government of the U.S. guarantees a 3% interest rate, to be paid semiannually, on a new 5-year Treasury note.
  • B. A sales representative of GetErDone Broker-Dealers guarantees that a client can expect an average annual rate of return of 2% on a mutual fund investment the sales representative is selling, pointing to the fact that the fund has returned an average annual rate of return of 6% over the past ten years.
  • C. An insurance company guarantees a fixed payment of $300 a month for life on an annuity it is selling.
  • D. Neither the statements in Selections B or C would be allowed under the guidelines of the Uniform Securities Act.


Answer : B

Explanation: A sales representative (aka an agent) of a broker-dealer may not make any guarantees. Only three entities are allowed to make guarantees under the Act: Parent companies, which may guarantee the securities of one of its subsidiaries, the U.S. government, and insurance companies.

Which of the following would meet the requirements for an "exempt security?"

  • A. a $500,000 promissory note that matures in two years
  • B. commercial paper with a $100,000 face value and a maturity of five months that is rated AA by Standard and Poors
  • C. a $25,000 promissory note that matures in three months
  • D. commercial paper with a $200,000 face value and a maturity of three months that is rated BB by Standard and Poors


Answer : B

Explanation: An issue of commercial paper with a $100,000 denomination and a maturity of five months with an AA rating from Standard and Poors meets the requirements for an "exempt security." A short-term security, with no more than 270 days to maturity, that has a denomination of at least $50,000, and has a rating of AAA, AA, or A from a recognized rating agency is exempt from registration with the state Administrator.

Which of the following describes an investment adviser that is not required to register with the state Administrator?

  • A. MoeMoney Investment Advisers, LLC has an office in the state with a client base of fifty individuals.
  • B. Financial Freedom Investment Advisers has no offices in the state although it does advise six wealthy individuals who are residents of the state.
  • C. CanDo Broker-Dealers is a state-registered broker-dealer. It has begun to offer asset management services to a few of its wealthier clients for a small management fee equal to 0.1% of the assets under management.
  • D. Buckeye Investment Advisers has no offices in the state, but it provides portfolio management services to an insurance company located in the state.


Answer : D

Explanation: Buckeye Investment Advisers is not required to register with the state Administrator since it has no offices in the state and provides portfolio management services to an institutional investor within the state. Both MoeMoney and Financial Freedom must register since they advise more than 5 individual clients. It doesn"™t matter in that case whether they have offices within the state or not. CanDo is registered only as a broker-dealer, but it has begun offering investment advice for a fee, so it must also register with the state as an investment adviser.

The state official who has regulatory authority over the securities industry within the state is known as the

  • A. attorney-general.
  • B. administrator.
  • C. investor-protection officer.
  • D. secretary of state.


Answer : B

Explanation: The state official who has regulatory authority over the securities industry within the state is the administrator.

Which of the following actions is the Administrator of a state empowered to take?

  • A. gather evidence
  • B. require restitution for the victims of a scam
  • C. impose civil penalties in cases of fraud
  • D. The Administrator of a state has the authority to take all of the above actions.


Answer : A

Explanation: The Administrator of a state can gather evidence, but it cannot impose any civil penalties, including the requirement of restitution to victims. These actions can only be performed by a court of law.

Which of the following orders can an Administrator issue without providing prior notice?

  • A. license suspension
  • B. license revocation
  • C. cease and desist
  • D. license denial


Answer : C

Explanation: The Administrator can issue an order to cease and desist without providing the party concerned with prior notice. In the cases involving the denial, suspension, or revocation of a license, the Administrator will provide prior notice, along with the opportunity for a hearing, and a written statement of the facts and the legal consequences involved.

It has come to the attention of the Administrator of the state that Samuel Shyster provided false information on his application to become a registered investment adviser with the state. Prior to revoking Samuel"™s license, the Administrator will provide Samuel with which of the following?

I. prior notice -
II. an opportunity to fill out a new registration statement
III. an opportunity for a hearing
IV. a written statement regarding the facts and the legal consequences

  • A. I, II, III, and IV
  • B. I, II, and III
  • C. I, III, and IV
  • D. I, II, and IV


Answer : C

Explanation: Prior to revoking Samuel"™s license, the Administrator will provide Samuel with prior notice (I), an opportunity for a hearing (III), and a written statement regarding the facts and the legal consequences (IV).

Sam Shyster had his day in court-and lost. His license to do business as an investment adviser in the state has been revoked. What legitimate options does Sam have available to him now?

  • A. Sam can move to another state and apply for registration as an investment adviser there.
  • B. Sam has 45 days in which to file an appeal with the attorney general.
  • C. Sam can register with the SEC as an investment adviser, which will exempt him from state registration requirements.
  • D. Sam has 60 days to file an appeal of the decision in a court of law.


Answer : D

Explanation: Sam has the legitimate option of filing an appeal of the decision in a court of law within 60 days. He will not be able to register as an investment adviser with the SEC or with another state. His application will be denied when it is discovered that Sam has had his license revoked by one state.

Which of the following constitutes a non-punitive order?

  • A. summary license suspension
  • B. registration cancellation
  • C. registration denial
  • D. All of the above are punitive orders.


Answer : B

Explanation: Registration cancellation is a non-punitive order. The Administrator issues a cancellation order if a registered person dies, becomes mentally incompetent, is no longer in business, or is unable to be located.

Broker-dealer Nebulous opted to withdraw its registration with the state. Six months later, the Administrator finds that Nebulous had been engaged in fraudulent securities transactions.
Which of the following statements is true?

  • A. The Administrator is unable to take disciplinary action against Nebulous because the self-initiated withdrawal became effective 30 days after the application was filed.
  • B. The Administrator is only able to take disciplinary action if the misdeeds are discovered within three months of the effective date of the withdrawal, so Nebulous slipped by this time.
  • C. The Administrator has five years from the discovery of the misdeed to take disciplinary action, so Nebulous will have to be on the lookout for a long time to come.
  • D. The Administrator can take disciplinary action against Nebulous for up to one year, so Nebulous is in trouble.


Answer : D

Explanation: Even though Nebulous withdrew its registration from the state, the Administrator has up to a year to take disciplinary action against the broker-dealer if he discovers that Nebulous has been engaged in fraudulent securities transactions after the fact. The Administrator can retroactively begin a revocation or suspension proceeding. Criminal courts can initiate proceedings anytime within five years of the alleged misdeeds.

Broker-Dealer Wheeler has no offices in the state. Wheeler does, however, sell corporate bonds from his portfolio to banks and insurance companies located in the state that purchase the bonds for their investment portfolios. He executes about twelve of these transactions a year. Wheeler profits from the price appreciation of the bonds during the time he held them, but receives no other form of compensation. Based on these facts,

  • A. Wheeler must register as a broker-dealer in the state, but the securities do not need to be registered.
  • B. Wheeler need not register in the state, and the securities are also exempt from registration.
  • C. Wheeler must register as a broker-dealer in the state, and the securities must also be registered before they can be sold to in-state investors.
  • D. Wheeler need not register in the state, but the securities must be registered before they can be sold to in-state investors.


Answer : B

Explanation: Since Wheeler has no offices in the state and is selling bonds from his portfolio to institutional investors, Wheeler need not register in the state, and the securities are exempt from registration. Broker-dealers with no physical location in a state that are doing business with other broker-dealers or with institutional investors such as banks and insurance companies that do have offices in that state are exempted from registering in the state. Securities sales to institutional investors are exempt transactions, and securities sold in exempt transactions are themselves exempt from state registration requirements.

Jack Bean is employed by Giant Investment Advisers, LLC. His job duties include advising clients on the asset allocations of their portfolios. Jack Bean is

  • A. an investment adviser representative.
  • B. an investment adviser.
  • C. an administrative assistant.
  • D. an agent.


Answer : A

Explanation: As an employee of Giant Investment Advisers who provides investment advice to clients, Jack Bean is an investment adviser representative. Giant is the investment adviser. Agents are employed by broker-dealers.

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Total 256 questions