CSLB General Building (B) — All Questions

An individual is hired by a start-up corporation to sell the corporation's own common stock to retail investors in State A, and she is paid a commission on each sale. Under the Uniform Securities Act, this individual is:

• a.An issuer, because she sells only the company's own shares
• b.Excluded from the definition of agent because she represents an issuer rather than a broker-dealer
• c.An agent who must register in State A✓
• d.A broker-dealer, because she effects securities transactions for compensation

An agent is an individual who represents a broker-dealer or an issuer in effecting or attempting to effect purchases or sales of securities, so representing an issuer does not by itself create an exclusion. The narrow exclusions for issuer representatives cover certain exempt securities, specified exempt transactions, and employee plans with no commission, none of which apply to commissioned retail sales of common stock. She is not the issuer; the corporation is. She is not a broker-dealer because a natural person representing an issuer is treated as an agent.Uniform Securities Act

Which of the following would NOT meet the Uniform Securities Act's definition of a 'person'?

• a.An individual who died last month✓
• b.A limited partnership formed to invest in real estate
• c.A city that issues revenue bonds
• d.An unincorporated investment club

'Person' is defined broadly to include individuals, corporations, partnerships, associations, joint-stock companies, trusts, unincorporated organizations, and governments or political subdivisions. The classic exclusions are a deceased individual, a minor, and an individual who has been judged mentally incompetent. Partnerships, municipalities, and unincorporated associations all fall squarely inside the definition.Uniform Securities Act

Which of the following is NOT a security under the Uniform Securities Act?

• a.A certificate of interest in an oil and gas drilling program
• b.A variable annuity contract
• c.A limited partnership interest in a real estate venture
• d.A fixed annuity contract whose payout is guaranteed by the insurance company✓

A fixed annuity shifts the investment risk to the insurer and pays a guaranteed dollar amount, so it is treated as an insurance product rather than a security. A variable annuity passes investment risk to the contract holder and is a security. Fractional interests in oil and gas programs and limited partnership interests are both named in the statutory definition.Uniform Securities Act

A broker-dealer registered in State X has no office in State Y. Its only State Y business consists of trades executed for three banks, a registered investment company, and another broker-dealer. Must the firm register in State Y?

• a.Yes, because any securities business conducted with State Y residents requires registration
• b.No, because a firm with no place of business in the state whose only clients there are institutions is excluded from the definition of broker-dealer in that state✓
• c.No, because broker-dealers register only with the SEC and never with a state
• d.Yes, unless it has fewer than five total clients in State Y

The institutional exception removes a firm from the broker-dealer definition in a state where it has no place of business and deals only with other broker-dealers, banks, savings institutions, trust companies, insurance companies, investment companies, and large employee benefit plans. The exception depends on the character of the clients, not a headcount, so the five-client answer is wrong. Broker-dealers doing business in a state generally do register at the state level, so the third choice misstates the law.Uniform Securities Act

An agent registered only in State A telephones a long-standing client who is spending the winter in State B. The agent recommends a bond purchase and the client agrees. Which statement is correct?

• a.No registration in State B is required, because the client remains a resident of State A and is only temporarily present in State B✓
• b.The agent must register in State B before the call because the offer was received there
• c.The agent may complete the trade only if the client signs a waiver of State B law
• d.The agent must wait until the client returns to State A before accepting the order

The so-called snowbird exception excludes from the broker-dealer and agent definitions a firm or individual with no place of business in the state whose only contacts there are existing customers who are not residents of that state. Residency, not physical location on the day of the call, drives the analysis. No client waiver can manufacture an exemption, and nothing in the act requires the agent to postpone the order.Uniform Securities Act

An investment adviser has its only office in State M. Over the past twelve months it has advised five individual clients who reside in State N, where it has no place of business. Regarding State N registration, the adviser:

• a.Must register because it has more than one client in the state
• b.Must register because advisers never qualify for numerical exemptions
• c.Qualifies for the de minimis exemption because it has no place of business in the state and has had five or fewer non-institutional clients there in the preceding twelve months✓
• d.Must register only if the five clients' combined assets exceed one million dollars

The de minimis exemption applies to an adviser with no place of business in the state that has had no more than five non-institutional clients in that state during the preceding twelve consecutive months. Client asset size is irrelevant to the count. Had the adviser maintained an office in State N, registration would be required no matter how few clients it had.Uniform Securities Act

Which statement about the consent to service of process is correct?

• a.It must be refiled with each annual renewal of the registration
• b.It is filed with the initial application and remains in effect permanently, appointing the Administrator to receive legal papers on the registrant's behalf✓
• c.It is required only of applicants whose principal office is outside the state
• d.It authorizes the Administrator to settle civil claims against the registrant

The consent to service of process is filed once with the original application and stays in force indefinitely; it names the Administrator as the registrant's attorney to receive service of process in actions arising under the act. It is required of all applicants, in-state and out-of-state alike, and of issuers registering securities. It is a procedural document and gives the Administrator no authority to settle claims.Uniform Securities Act

An agent resigns from Broker-Dealer One and joins Broker-Dealer Two the following week. Under the Uniform Securities Act, notice of the change must be given to the Administrator by:

• a.The agent only
• b.Broker-Dealer One only
• c.Broker-Dealer Two only
• d.The agent, Broker-Dealer One, and Broker-Dealer Two✓

When an agent begins or terminates a connection with a broker-dealer or issuer, the act places the notification duty on all three parties: the agent, the firm being left, and the firm being joined. An agent's registration is not effective during any period when the agent is not associated with a registered broker-dealer or issuer, which is why the transition must be documented on both ends.Uniform Securities Act

Which individual at a state-registered investment advisory firm would be considered an investment adviser representative?

• a.A receptionist who schedules client meetings
• b.A portfolio manager who selects securities for client accounts and supervises two junior analysts✓
• c.An accounts-payable clerk who processes vendor invoices
• d.A building maintenance technician employed by the firm

An investment adviser representative is a supervised person who makes recommendations or renders advice, manages accounts, determines what advice to give, solicits advisory services, or supervises those who do. Individuals whose functions are purely clerical or ministerial are excluded, which covers the receptionist, the clerk, and the maintenance worker. The portfolio manager both advises and supervises, so registration is required.Uniform Securities Act

Absent a denial order or pending proceeding, an application for registration as a broker-dealer, agent, investment adviser, or investment adviser representative becomes effective:

• a.Immediately upon filing with the Administrator
• b.At the close of business on the tenth day after filing
• c.When the applicant passes the required qualification examination
• d.At noon on the thirtieth day after a complete application is filed✓

The act provides that a registration application becomes effective at noon of the thirtieth day after filing if no stop order is in effect and no proceeding is pending. The Administrator may by rule or order specify an earlier effective date. Passing an examination is a qualification the Administrator may impose, but it does not by itself trigger effectiveness.Uniform Securities Act

A state-registered investment adviser maintains custody of client funds and securities. Regarding financial requirements, the Administrator may:

• a.Require a minimum net worth and a surety bond, though an adviser that meets the state's net worth standard may be excused from posting the bond✓
• b.Require a surety bond but never a minimum net worth
• c.Require nothing, because financial requirements are set exclusively by federal law
• d.Require the adviser to insure client accounts against market losses

The act authorizes the Administrator to establish minimum net capital or net worth standards for broker-dealers and advisers and to require surety bonds, particularly where the firm has custody or discretionary authority. States commonly allow an adviser that satisfies the net worth requirement to deposit cash or securities in lieu of the bond or to be excused from it. No state may require a firm to guarantee client accounts against market loss.Uniform Securities Act

A registered broker-dealer files an application to withdraw its registration in a state. Which statement is correct?

• a.The withdrawal is effective immediately upon filing
• b.The withdrawal never becomes effective if a customer complaint is on file
• c.The withdrawal becomes effective thirty days after filing unless a proceeding is pending, and the Administrator retains jurisdiction for one year to institute a revocation or suspension proceeding✓
• d.The Administrator loses all authority over the firm the moment the application is filed

Withdrawal becomes effective thirty days after filing, or earlier if the Administrator so determines, provided no revocation or denial proceeding is pending. The Administrator keeps jurisdiction for one year after the withdrawal takes effect and may still enter a revocation or suspension order. A pending complaint alone does not permanently block a withdrawal.Uniform Securities Act

Unless renewed, the registration of a broker-dealer, agent, investment adviser, or investment adviser representative expires:

• a.On the anniversary of the original effective date
• b.Every two years on June 30
• c.Only when the registrant ceases doing business in the state
• d.On December 31 of each year✓

State registrations run on a calendar-year cycle and expire on December 31 unless renewed by filing the required renewal and paying the annual fee. There is no rolling anniversary date and no two-year cycle under the act. A registrant who stops doing business must affirmatively withdraw rather than simply let the file lapse.Uniform Securities Act

An individual represents a corporate issuer in selling only United States Treasury notes and general obligation bonds of the state to the public. Under the Uniform Securities Act, this individual:

• a.Must register as an agent because he sells to the public
• b.Is excluded from the definition of agent because he represents an issuer in transactions in specified exempt securities✓
• c.Must register as a broker-dealer instead of an agent
• d.Must register as an agent only if he receives commissions

The act excludes from the agent definition an individual who represents an issuer in effecting transactions in certain exempt securities such as federal and municipal government obligations and qualifying commercial paper. Because the exclusion applies, no agent registration is required whether or not commissions are paid. A natural person representing an issuer is never a broker-dealer under the act.Uniform Securities Act

A certified public accountant prepares tax returns for a client. During the engagement she explains that municipal bond interest would reduce the client's tax bill and suggests he discuss municipal bonds with a broker. She charges only her standard tax preparation fee. Under the Uniform Securities Act, the accountant is:

• a.An investment adviser who must register in the state
• b.An investment adviser representative of her accounting firm
• c.Excluded from the definition of investment adviser because the advice was solely incidental to her accounting practice and she received no special compensation✓
• d.A broker-dealer because she referred the client to a securities firm

The act excludes lawyers, accountants, teachers, and engineers whose investment advice is solely incidental to their profession and who receive no special compensation for it. Both prongs are met here: the comment arose out of tax work and no separate advisory fee was charged. Had she billed a distinct fee for securities advice, the exclusion would be lost.Uniform Securities Act

Which of the following is specifically excluded from the definition of broker-dealer under the Uniform Securities Act?

• a.A bank, savings institution, or trust company✓
• b.A firm that maintains a branch office in the state and trades for retail customers
• c.A firm with no place of business in the state that solicits retail investors there by telephone
• d.A partnership organized to trade securities for the accounts of its many outside investors

The broker-dealer definition expressly excludes agents, issuers, and banks, savings institutions, and trust companies. A firm with a place of business in the state must register regardless of client type, and a firm cold-calling retail residents from out of state is doing business in that state. The trading partnership effects transactions for the accounts of others and would need to register.Uniform Securities Act

An investment adviser with $400 million in assets under management is registered with the SEC and has offices in three states. With respect to those states, the adviser:

• a.Cannot be required to register with the states, but may be required to file a notice, pay fees, and file a consent to service of process✓
• b.Must also register in each state where it has an office
• c.Has no obligation of any kind to the state Administrators
• d.Must register in the state of its principal office and notice file in the others

An adviser required to register with the SEC is a federal covered adviser, and federal law preempts state registration requirements for such firms. States retain the right to require notice filings, collect fees, and demand a consent to service of process, and they keep full antifraud authority. State registration itself may not be imposed on a federal covered adviser, even in the state of its principal office.Uniform Securities Act

An individual who advises clients on behalf of a federal covered investment adviser works out of the firm's branch office in State P. This individual:

• a.Is exempt from state registration because the firm is federally covered
• b.Must register with the SEC rather than with State P
• c.Must register as an investment adviser representative in State P because he has a place of business there✓
• d.Need not register anywhere as long as he has fewer than six clients

Although the firm itself is federally covered and cannot be required to register with a state, individual representatives are registered at the state level. The trigger is having a place of business in the state, so a representative working from an in-state office must register there. The SEC does not register individual representatives, and the de minimis client count applies to advisory firms without a place of business, not to representatives with one.Uniform Securities Act

A broker-dealer registered in State A opens a branch office in State B. Its only State B customers will be three large insurance companies. Regarding State B registration, the firm:

• a.Is excluded because its only clients there are institutions
• b.Must register in State B because it maintains a place of business in the state✓
• c.Must register only after it accepts a retail account
• d.May rely on its State A registration under reciprocity

The institutional exception is available only to a firm with no place of business in the state. Once the firm opens an office in State B, registration is required regardless of how sophisticated its customers are. The Uniform Securities Act contains no general reciprocity provision that lets one state's registration substitute for another's.Uniform Securities Act

An agent working from an office in State A mails a prospectus and a solicitation letter to a prospect who reads it at her home in State B. Under the Uniform Securities Act, the offer is considered made:

• a.Only in State A, where the letter originated
• b.Only in State B, where the letter was received
• c.In neither state, because no sale occurred
• d.In both State A and State B, giving each Administrator jurisdiction✓

An offer is made in a state if it originates from that state or is directed to and received in that state, so both Administrators have jurisdiction. The failure to complete a sale is irrelevant because the act reaches offers as well as sales. Sending offering material into a state is precisely the conduct that triggers the receiving state's authority.Uniform Securities Act

A securities offering is advertised in a television broadcast that originates outside State C but is viewed by residents of State C. Under the Uniform Securities Act, the offer is:

• a.Deemed made in State C because residents saw it
• b.Deemed made in State C only if a State C resident responds
• c.Not deemed made in State C, because the broadcast originated outside the state✓
• d.Deemed made in every state where the signal is received

The act contains a media exception: an offer is not deemed made in a state when it appears in a bona fide newspaper or periodical published outside the state, or in a radio or television broadcast originating outside the state. The point of origination controls, not where the signal lands. A resident's response would create an ordinary transaction subject to the usual rules, but it does not retroactively make the broadcast an in-state offer.Uniform Securities Act

An employee of a manufacturing corporation is asked to distribute and explain the company's new stock purchase plan to fellow employees. She receives no commission or other remuneration for these sales. Under the Uniform Securities Act, she is:

• a.Not an agent, because she represents the issuer in transactions with the issuer's employees and receives no commission✓
• b.An agent who must register before speaking with any employee
• c.An investment adviser representative
• d.A broker-dealer with respect to the plan

The act excludes from the agent definition an individual who represents an issuer in effecting transactions with the issuer's employees, partners, or directors when no commission or other remuneration is paid for soliciting those persons. The absence of transaction-based compensation is essential; paying her a commission would destroy the exclusion. She gives no investment advice for compensation and does not effect trades for the accounts of others as a firm.Uniform Securities Act

A broker-dealer's state registration is suspended for sixty days. During the suspension, the registrations of the agents employed by that firm:

• a.Remain fully effective because they were registered individually
• b.Are automatically revoked and must be reapplied for
• c.Transfer automatically to any affiliated firm
• d.Are also not in effect, because an agent's registration is effective only while the agent is associated with a registered broker-dealer or issuer✓

An agent's registration is derivative: it is effective only while the agent is associated with a registered broker-dealer or issuer, so suspending the firm suspends the agents' ability to act. The registrations are not revoked outright, so a brand-new application is not automatically required. Registrations do not migrate to affiliates by operation of law.Uniform Securities Act

A registered broker-dealer reorganizes and a successor firm takes over the business in the middle of the registration year. Under the Uniform Securities Act, the successor firm:

• a.Must file a completely new application and wait thirty days before doing business
• b.May file an application that becomes effective on the date the predecessor's registration terminates and is effective for the unexpired portion of the year without an additional filing fee✓
• c.May simply continue to operate under the predecessor's registration indefinitely
• d.Must cease all business until the next annual renewal cycle

The act permits a successor to file an application that takes effect when the predecessor's registration terminates and runs for the unexpired portion of the year, with no filing fee charged for that partial period. The successor cannot simply operate on the predecessor's registration, but neither must it endure a full waiting period or suspend operations.Uniform Securities Act

A Canadian broker-dealer with no U.S. office wants to continue servicing the self-directed retirement accounts of Canadian clients who are temporarily living in a U.S. state. Under the NASAA model rule for Canadian firms, the broker-dealer:

• a.May not deal with those clients at all while they are in the United States
• b.Must obtain full broker-dealer registration in the state
• c.Is completely exempt from all state requirements
• d.May obtain a limited registration by filing an application, evidence of home-jurisdiction registration and good standing, and a consent to service of process✓

The NASAA model rule creates a limited registration path for Canadian broker-dealers and their agents servicing Canadian clients temporarily present in the United States, primarily for self-directed tax-advantaged retirement accounts. The firm files an application, proof that it is registered and in good standing in its home jurisdiction, and a consent to service of process. It is neither barred from the business nor forced into full domestic registration, and it is not free of all state obligations.NASAA Model Rule

Which of the following would be considered a 'sale' under the Uniform Securities Act?

• a.A bona fide gift of fully paid, nonassessable stock to a family member
• b.A gift of assessable stock✓
• c.A stock dividend for which shareholders give up nothing of value
• d.A pledge of securities as loan collateral that is never foreclosed

The act treats a gift of assessable stock as a sale because the recipient takes on a potential future obligation, which functions as consideration. A bona fide gift of nonassessable stock involves no value given and is not a sale, and a stock dividend for which nothing is surrendered is likewise excluded. A pledge creates a security interest rather than a transfer of ownership for value.Uniform Securities Act

An individual employed by a registered broker-dealer answers the main telephone line, routes calls to registered personnel, and files paperwork. He never discusses securities or accepts orders. This individual:

• a.Must register as an agent because he is employed by a broker-dealer
• b.Must register as an agent because he speaks with customers
• c.Need not register, because his functions are clerical and he does not effect or attempt to effect securities transactions✓
• d.Must register as an investment adviser representative

Registration as an agent turns on whether the individual effects or attempts to effect purchases or sales of securities, not on mere employment at a firm. Purely clerical and ministerial staff fall outside the definition. If he began taking orders or making recommendations, registration would immediately be required.Uniform Securities Act

An investment adviser opens a small office in State Q and, during its first year, takes on only two clients who reside in State Q. Regarding State Q registration, the adviser:

• a.Must register, because the de minimis exemption is unavailable to an adviser that has a place of business in the state✓
• b.Need not register, because it has fewer than six clients in the state
• c.Need not register until it has at least fifteen clients
• d.Must register only if the clients are institutional

The de minimis exemption requires that the adviser have no place of business in the state; the client count is a second condition, not a substitute for the first. Once an office exists in the state, registration is required even with a single client. Institutional clients would, if anything, make an exemption easier to reach rather than harder.Uniform Securities Act

For purposes of the institutional exception from the broker-dealer definition, which of the following clients would NOT preserve the exception?

• a.A commercial bank
• b.An individual investor with a $4 million portfolio✓
• c.A registered investment company
• d.An insurance company

The institutional exception lists other broker-dealers, banks, savings institutions, trust companies, insurance companies, investment companies, and large employee benefit plans. A wealthy individual is still a retail customer and does not appear on that list, no matter how large the account. Doing business with even one such person in a state where the firm has no place of business defeats the exception.Uniform Securities Act

An agent is registered only in State A. Her broker-dealer is registered in both State A and State B. She begins cold-calling residents of State B from her desk in State A. Which statement is correct?

• a.No registration in State B is needed because her firm is registered there
• b.No registration in State B is needed because she never physically enters the state
• c.She may solicit up to five State B residents before registering
• d.She must register as an agent in State B, because her offers are directed into and received in that state✓

Agent registration is individual and state-specific; the firm's registration does not cover its agents. An offer directed into and received in a state is made in that state, so physical presence is irrelevant. The de minimis client counts belong to the investment adviser provisions and create no free-solicitation allowance for agents.Uniform Securities Act

Which statement about issuers under the Uniform Securities Act is correct?

• a.An issuer is any person who issues or proposes to issue a security, and an issuer selling only its own securities is not a broker-dealer✓
• b.An issuer must always register as a broker-dealer before selling its own securities
• c.Only corporations can be issuers
• d.An issuer is automatically an agent of the individuals who sell its shares

The definition covers any person who issues or proposes to issue a security, which includes governments, partnerships, and trusts as well as corporations. Because a broker-dealer effects transactions for the accounts of others, an entity selling only its own securities falls outside that definition. The relationship in the last choice is backwards: individuals who sell for the issuer may be its agents.Uniform Securities Act

An agent's employing broker-dealer voluntarily withdraws its state registration. Absent any other affiliation, the agent's registration in that state:

• a.Continues until the next December 31 renewal date
• b.Is unaffected because agents register independently of their firms
• c.Is not in effect, because an agent may not act while unassociated with a registered broker-dealer or issuer✓
• d.Automatically converts to an investment adviser representative registration

The act states that an agent's registration is not effective during any period when the agent is not associated with a registered broker-dealer or issuer. Withdrawal by the firm therefore parks the agent's registration until a new affiliation is filed. Agent and investment adviser representative registrations are separate categories and never convert automatically.Uniform Securities Act

A registered broker-dealer discovers that information in its original state application has become materially inaccurate. The firm should:

• a.Wait and correct the information at the next annual renewal
• b.Correct the information only if a customer or the Administrator asks about it
• c.Promptly file an amendment with the Administrator correcting the information✓
• d.Withdraw its registration and file a new application

Registrants must keep their filings current and promptly amend any information that becomes inaccurate or incomplete in a material respect. Waiting for renewal or for someone to ask leaves a false filing on record, which is itself a ground for discipline. Withdrawing and refiling is a drastic step the act does not require for a simple amendment.Uniform Securities Act

An investment advisory firm has its only office in State D, where it is registered. It also serves three individual clients in State E and four individual clients in State F, with no office in either. Which statement is correct?

• a.It must register in all three states because it has clients in each
• b.It must register in State E and State F but may withdraw from State D
• c.It need not register anywhere because no state has more than five of its clients
• d.It must remain registered in State D and may rely on the de minimis exemption in States E and F✓

Registration is required in the state where the adviser maintains a place of business, so State D registration is mandatory. In States E and F the firm has no place of business and has had five or fewer non-institutional clients in the preceding twelve months, satisfying the de minimis exemption. The counts are measured state by state and never excuse registration where an office exists.Uniform Securities Act

An unregistered individual introduces investors to a small private company and receives a percentage of every dollar the investors put in. The most likely conclusion under the Uniform Securities Act is that she:

• a.Is acting as an unregistered agent, because transaction-based compensation for effecting securities sales points squarely to agent status✓
• b.Is exempt because she never handled customer funds
• c.Is an investment adviser rather than an agent
• d.Is a broker-dealer because she was paid a percentage

Receiving compensation tied to the size or completion of securities transactions is the strongest indicator that a person is effecting or attempting to effect sales and is therefore acting as an agent. Never touching customer money creates no exemption. She is not an adviser because she is paid for sales rather than for advice, and a natural person representing an issuer is treated as an agent rather than a broker-dealer.Uniform Securities Act