NASAA Series 63 — All Questions

A customer opens a margin account and buys on margin. The firm intends to pledge the customer's securities to a bank loan. What does the policy require?

• a.A verbal margin agreement, with a written consent to hypothecation obtained before the account is opened
• b.Nothing more, since margin rules are set entirely by the exchange where the securities trade
• c.A written margin agreement and written consent to hypothecation, each promptly after the first trade✓
• d.A written margin agreement only, since hypothecation consent is implied when the margin account is opened

A broker-dealer may not execute transactions in a margin account without a properly executed written margin agreement promptly after the initial transaction, and may not hypothecate a customer's securities without a lien on them unless it obtains a properly executed written consent promptly after the initial transaction, except as the SEC rules permit. A verbal margin agreement is not sufficient, consent to hypothecation is not implied by opening the account, and exchange rules do not displace the written requirements.NASAA Statement of Policy, Dishonest or Unethical Business Practices of Broker-Dealers and Agents §1.h, §1.j

A customer buys shares in a new offering. By when must the broker-dealer give the customer a final prospectus, or a preliminary prospectus with an additional document containing the remaining information?

• a.Within the first full calendar quarter that begins after the offering has ended
• b.Within thirty days after the settlement date of the customer's transaction
• c.No later than the due date of the confirmation of the customer's purchase✓
• d.Before the customer pays, but never earlier than the effective date of the offering

The policy lists as unethical failing to furnish a customer purchasing securities in an offering, no later than the due date of the confirmation, either a final prospectus or a preliminary prospectus plus an additional document that together include all the information in the final prospectus. The other timing choices have no basis in the policy.NASAA Statement of Policy, Dishonest or Unethical Business Practices of Broker-Dealers and Agents §1.l

A customer wins a $60,000 arbitration award against an agent's firm arising from a complaint about investments. The firm ignores the award and no payment plan is agreed. Under the policy, this is:

• a.A concern for the state only if the award exceeds $100,000 including interest
• b.A dishonest or unethical practice and a ground for action against the firm's registration✓
• c.A concern for the state only if the customer complains to the administrator within one year
• d.Not a concern for the state, since only the arbitration forum can enforce an award

Failing to pay and fully satisfy a final judgment or arbitration award from an investment-related, customer-initiated proceeding is listed as unethical, unless alternative written payment arrangements have been agreed and followed. The administrator may act on the conduct, so the claim that only the arbitration forum has a role is wrong, and the policy sets neither a minimum award amount nor a one-year complaint deadline.NASAA Statement of Policy, Dishonest or Unethical Business Practices of Broker-Dealers and Agents §1.w

A broker-dealer agent who is not licensed as an investment adviser representative uses the business card title "Senior Retirement Advisor." What is the status of this practice?

• a.Unethical, since a title with a variant of adviser requires licensure as an adviser or representative✓
• b.Unethical only if the agent charges the customer separate fees for the advice given
• c.Acceptable, since any agent may use a title that accurately describes the services the agent offers
• d.Acceptable, if the title is also reported on the firm's Form BD and the agent's Form U4

Using a title, credential, or professional designation containing any variant of adviser or advisor without licensure as an investment adviser or investment adviser representative is listed as unethical, unless otherwise permitted by law. A description of services does not make the title permissible, a Form BD or Form U4 notation does not supply the licence, and the practice does not depend on whether a separate fee is charged.NASAA Statement of Policy, Dishonest or Unethical Business Practices of Broker-Dealers and Agents §1.e

An investment adviser begins trading for a client on the client's oral discretionary authority on June 1. By when must the adviser have written discretionary authority?

• a.Within ten business days after the first transaction made under the oral authority✓
• b.By the end of the calendar year in which the first transaction was placed
• c.Within thirty calendar days after the first transaction made under the oral authority
• d.Before the first transaction, since oral discretionary authority is never sufficient

The model rule treats exercising discretion without written discretionary authority from the client within ten business days after the date of the first transaction under oral authority as unethical, unless the discretion is limited to the price or time of an order for a definite amount of a specified security. The wait is therefore ten business days, not thirty calendar days or a year-end deadline, and oral authority is acceptable for that short period.NASAA Model Rule 102(a)(4)-1 (b)

A client's accountant calls an investment adviser and tells it to sell 1,000 shares in the client's account. The adviser has no paperwork from the client on file. What must the adviser have to place the order?

• a.Verbal confirmation from the client, received shortly after the order is entered
• b.A signed advisory contract with the accountant's firm covering the client's account
• c.A written authorization from the accountant, prepared on the accountant's letterhead
• d.A written third-party trading authorization from the client before the order✓

Placing an order for a client's account on the instruction of a third party without first obtaining a written third-party trading authorization from the client is unethical. The authority must come from the client, in writing and before the order, so the accountant's own letter, later verbal confirmation, or a contract with the accountant's firm is not sufficient.NASAA Model Rule 102(a)(4)-1 (e)

From which of the following may an investment adviser borrow money without violating the model rule?

• a.A bank that is in the business of loaning funds and is also a client of the adviser✓
• b.A client who is an individual and asks the adviser to take a loan to protect the account
• c.A client who is a long-time friend of the adviser and a financial professional
• d.A retired client who offers a low-rate loan and a signed promissory note

An adviser may not borrow money or securities from a client unless the client is a broker-dealer, an affiliate of the adviser, or a financial institution engaged in the business of loaning funds. A bank lender fits the last category. A retired individual, a friend who works as a financial professional, and an individual who asks for the loan to protect the account are not within those categories, however the loan is documented or priced.NASAA Model Rule 102(a)(4)-1 (f)

An adviser will receive a commission from a product company if it recommends that product to a client. When must the adviser disclose this to the client?

• a.Orally, when the client first asks about the adviser's compensation
• b.In writing, within thirty days after the client acts on the recommendation
• c.In writing, before the adviser gives any advice about the product✓
• d.In the next annual brochure update, after the commission is paid

The model rule treats as unethical failing to disclose to clients in writing before any advice is rendered any material conflict of interest, including compensation in addition to the client's fees. Oral disclosure when asked, disclosure after the client acts, and an annual update all arrive too late or lack the writing requirement.NASAA Model Rule 102(a)(4)-1 (k)

An adviser plans to sell a security from its own inventory to a client, acting as principal. What must happen before the transaction is completed?

• a.The adviser must obtain a written opinion that the price is fair from an independent party
• b.The adviser must file a notice of the sale with the administrator and wait ten days
• c.The adviser must tell the client orally and note the conversation in its records
• d.The adviser must disclose in writing its principal capacity and obtain the client's consent✓

An adviser who acts as principal for its own account in a transaction with a client, or as broker for someone other than the client, must disclose its capacity in writing before completion of the transaction and obtain the client's consent. A notice to the administrator, an oral explanation alone, or an independent fairness opinion is not the Act's requirement.Uniform Securities Act (1956) §102(a)(3)

Which provision must appear in an investment advisory contract?

• a.A statement that the adviser is entitled to a share of capital gains in the client's account
• b.A statement that the adviser may assign the contract to a successor without telling the client
• c.A statement that the contract may not be assigned without the client's consent✓
• d.A statement that the client may not terminate the contract during the first year

An advisory contract must provide that the adviser may not be compensated on the basis of a share of capital gains or capital appreciation of the client's funds, that no assignment will be made without the client's consent, and that the adviser, if a partnership, will notify the client of any change in membership. The wrong options reverse those provisions or add terms the Act does not provide.Uniform Securities Act (1956) §102(c)

An adviser's advertisement shows a model portfolio's gross performance. Under the model rule's advertising standard, what else is required?

• a.Net performance shown with at least equal prominence and calculated over the same period✓
• b.A statement from the administrator that the performance figures were verified as accurate
• c.Net performance for the most recent year only, shown in a footnote to the table
• d.A statement that the figures are projections and not based on actual accounts

Under the model rule's advertising alternative, gross performance may be shown only if net performance is also shown with at least equal prominence and calculated over the same period and using the same method. The administrator does not approve performance, a footnote for one year is not equal prominence, and a projection statement is not the required addition.NASAA Model Rule 102(a)(4)-1 (m) Alternative 2

An adviser's website carries a testimonial from a current client who was paid a gift card for it. What must the advertisement disclose?

• a.That the administrator has reviewed the testimonial and approved its use in the advertisement
• b.Only that the testimonial reflects the personal opinion of the client who gave it to the adviser
• c.That the speaker is a current client, that compensation was paid, and any material conflict of interest✓
• d.Only that the client's name was withheld to protect the client's privacy, with no other disclosure

A testimonial or endorsement must disclose, clearly and prominently, whether it was given by a current client or other person, that cash or non-cash compensation was provided, and a brief description of any material conflicts of interest, among other conditions. A general statement of opinion, a privacy note, or an administrator approval statement does not meet the rule.NASAA Model Rule 102(a)(4)-1 (m) Alternative 2

An investment adviser accepts custody of client funds. Under the Act, what must the adviser do about the administrator?

• a.Register again as a broker-dealer in addition to its adviser registration, before taking custody
• b.File a fresh adviser application every quarter for as long as the custody continues
• c.Nothing, since custody by an adviser is always prohibited and notification cannot change that
• d.Notify the administrator, unless a rule bars custody, in which case it may not take custody✓

The Act makes it unlawful for an adviser to take custody of client funds or securities if the administrator's rules prohibit it or, when no rule addresses the subject, if the adviser has not notified the administrator. Custody is therefore not banned outright, which rules out the claim that notification is pointless. Neither a second registration as a broker-dealer nor a quarterly application is required.Uniform Securities Act (1956) §102(e)

An agent recommends a speculative biotech stock to a 78-year-old retiree whose stated goal is capital preservation, without asking about her finances. This practice is:

• a.Acceptable, since the customer is free to decline any recommendation the agent makes to her and no trade occurs without her consent
• b.Unethical only if the stock actually loses more than half of its value within the first year after she buys it
• c.Unethical, because a recommendation needs a suitability basis built on reasonable inquiry✓
• d.Acceptable if the agent tells her that the stock may lose value before she buys it and she then confirms the order in writing

Recommending a purchase, sale, or exchange without reasonable grounds to believe it is suitable, based on reasonable inquiry into the customer's investment objectives, financial situation, and needs, is listed as unethical. The customer's freedom to decline, a generic risk warning and a written order confirmation do not replace the inquiry, and the violation occurs at the time of the recommendation, regardless of later losses.NASAA Statement of Policy, Dishonest or Unethical Business Practices of Broker-Dealers and Agents §1.c

The administrator suspects that a person outside the state has been selling securities to state residents without registering. What investigative authority does the Act give?

• a.Investigations outside the state only through the securities administrator of that other state
• b.Public or private investigations inside or outside the state, as the administrator considers necessary✓
• c.Investigations only inside the state, and only after a customer files a written complaint
• d.Public investigations only, because private inquiries require a court order to proceed

The administrator may make public or private investigations within or outside the state as necessary to determine whether a violation has occurred or is about to occur, and may require written statements and publish information about violations. No complaint is required, private inquiries are permitted, and out-of-state investigation does not depend on another state's administrator.Uniform Securities Act (1956) §407(a)

A witness ignores the administrator's subpoena to produce records. What may the administrator do?

• a.Do nothing, because a subpoena issued in an investigation has no enforcement mechanism
• b.Apply to a court, which may order compliance and punish disobedience as contempt of court✓
• c.Have the witness arrested by the administrator's own staff and held until the records are produced
• d.Fine the witness directly, up to $5,000 for each day that the records are withheld from the staff

On a witness's refusal to obey a subpoena, the administrator applies to the court, which may issue an order requiring the person to appear and produce evidence, and failure to obey that order may be punished as contempt. The administrator cannot itself fine or arrest, and the subpoena is enforceable through the court.Uniform Securities Act (1956) §407(c)

A witness called by the administrator declines to answer, citing the privilege against self-incrimination. Under the Act:

• a.The witness must testify, but may not be prosecuted for what is disclosed, except for perjury or contempt✓
• b.The witness must testify, and the testimony may be used against the witness in a later prosecution
• c.The witness must testify, and the testimony is shielded even if the witness lies under oath
• d.The witness may refuse to testify, because the privilege applies fully in administrative inquiries

No person is excused from testifying or producing records on the ground of self-incrimination, but no individual may be prosecuted or penalized on account of the matter after claiming the privilege and being compelled to testify, except for perjury or contempt committed in testifying. The privilege does not allow refusal, the testimony is protected from use in prosecution, and the protection does not cover false testimony.Uniform Securities Act (1956) §407(d)

Under §408, how may the administrator proceed when it issues a cease and desist order?

• a.It may be issued without a hearing only for the sale of an unregistered security in the state
• b.It may be issued only after a hearing and written findings, and only a court may grant an injunction
• c.It may be issued with or without a prior hearing, and the administrator may also seek an injunction✓
• d.It may be issued only after a criminal conviction, and it takes the place of any injunction

Section 408 lets the administrator, in discretion, issue a cease and desist order with or without a prior hearing, or bring an action to enjoin the acts, or both. A hearing is not required before the order, a criminal conviction is not a precondition, and the no-hearing option is not limited to unregistered securities.Uniform Securities Act (1956) §408

In an action the administrator brings to enjoin a violation, what may the court do?

• a.Grant an injunction only if the administrator posts a bond equal to the defendant's alleged gains from the sales
• b.Order restitution only, since an injunction against future conduct is left to the administrative hearing process
• c.Grant an injunction only, since receivership and restitution require a separate criminal case against the defendant
• d.Grant an injunction, appoint a receiver, and order restitution, with no bond required of the administrator✓

On a proper showing the court may grant a permanent or temporary injunction, restraining order, or writ of mandamus, appoint a receiver or conservator, and order rescission, restitution, or disgorgement. The court may not require the administrator to post a bond, so a bond tied to alleged gains is wrong. Receivership and restitution do not depend on a criminal case, and the court itself can enjoin future conduct without waiting for an administrative hearing.Uniform Securities Act (1956) §408(b)

A person is convicted of willfully violating the registration requirement. What is the maximum criminal penalty under the Act?

• a.A fine of up to $1,000, imprisonment of up to one year, or both penalties
• b.A fine of up to $10,000, imprisonment of up to five years, or both penalties, per count
• c.A fine of up to $5,000, imprisonment of up to three years, or both penalties✓
• d.A fine of up to $5,000, with imprisonment available only after a second conviction

A person who willfully violates the Act is, on conviction, fined not more than $5,000, imprisoned not more than three years, or both. The Act does not require a prior conviction to impose imprisonment, and the other amounts and terms are not the statute's.Uniform Securities Act (1956) §409(a)

An agent violates an administrator's order that the agent did not know existed, and the agent proves that lack of knowledge. Which statement is correct?

• a.The agent is entirely free of liability, since the administrator did not serve the order personally
• b.The agent may not be imprisoned for violating the order, although other penalties may still apply✓
• c.The agent may be imprisoned for up to three years, since knowledge of an order is not an element
• d.The agent may be imprisoned for up to one year, since lack of knowledge only reduces the term

No person may be imprisoned for a violation of a rule or order if the person proves no knowledge of it, but the Act does not otherwise excuse the violation, and fines and administrative action remain possible. The knowledge defense removes imprisonment altogether rather than shortening it, and it does not erase all liability.Uniform Securities Act (1956) §409(a)

The administrator finds evidence of willful fraud in a securities sale. Which statement describes the administrator's role in criminal enforcement?

• a.The administrator prosecutes criminal cases directly before the administrative hearing officer
• b.The administrator may refer the evidence to the attorney general or district attorney, who may prosecute anyway✓
• c.The administrator may refer the evidence, but only federal authorities prosecute securities crimes
• d.The administrator may not refer any evidence until the civil remedies have all been completed

The administrator may refer available evidence of violations to the attorney general or the proper district attorney, who may institute criminal proceedings with or without such a referral. Criminal prosecution is not conducted by the administrator, is not limited to the federal government, and does not wait for civil remedies to finish.Uniform Securities Act (1956) §409(b)

A buyer paid $20,000 for a security sold in violation of the registration requirement, received $1,500 in income on it, and still owns it. What may the buyer recover?

• a.Only the $1,500 of income, because the buyer still owns the security and has suffered no loss
• b.The $20,000 plus the income, costs, and attorneys' fees, without a tender of the security
• c.The $20,000 paid plus interest, costs, and attorneys' fees, less the $1,500, upon tendering the security✓
• d.Only the difference between the price paid and the security's market value on the date of suit

A buyer may recover the consideration paid plus interest, costs, and reasonable attorneys' fees, less income received, on tendering the security, or damages if the security is no longer owned. The remedy requires the tender and subtracts the income, and it is not a market-value difference. The liability does not require proof of fraud in a registration violation.Uniform Securities Act (1956) §410(a)

A buyer bought stock on January 10, 2021, and discovered on March 5, 2023 that the sale was unlawful. By what date must a civil suit under §410 be filed?

• a.January 10, 2024, since three years from the sale comes before two years from discovery✓
• b.January 10, 2026, since five years from the sale is the outside limit that governs all such suits
• c.March 5, 2024, since one year from the date of discovery is the controlling limit
• d.March 5, 2025, since two years from discovery is the later and therefore controlling date

No suit may be brought more than three years after the contract of sale, or two years after discovery of the facts, whichever first occurs. Three years from January 10, 2021 is January 10, 2024, while two years from discovery is March 5, 2025, so the earlier date controls. The statute is not a five-year or one-year period.Uniform Securities Act (1956) §410(f)

A seller sends a buyer who still owns the security a written offer to refund the price plus interest, less income received. The buyer ignores the offer for 45 days and then sues. What is the result?

• a.The buyer may sue, since the period to accept a refund offer is sixty days
• b.The buyer may sue, since a refund offer never affects the right to bring suit
• c.The buyer may not sue, since the offer was not accepted within thirty days of receipt✓
• d.The buyer may sue only for damages, since the offer limits recovery but does not bar suit

No person may sue under the section if the buyer, while owning the security, received a written offer to refund the consideration with interest less income and failed to accept it within thirty days of receipt. The buyer's silence for 45 days therefore bars the suit. The acceptance period is thirty days, not sixty, and the refund offer does bar the suit rather than limit the damages.Uniform Securities Act (1956) §410(g)

A broker-dealer is liable to a buyer for selling an unregistered security. Who else may be jointly and severally liable?

• a.Only the broker-dealer itself, since the Act creates liability for the firm and never for individuals within it
• b.All employees of the broker-dealer, whether or not they took part, with no defense of lack of knowledge
• c.Partners, officers, directors, and control persons, unless they prove they could not have known✓
• d.Only the issuer's attorneys and accountants, who must have signed the registration documents under the Act

Every person who directly or indirectly controls a person liable, including partners, officers, and directors, employees who materially aid the conduct, and broker-dealers or agents who materially aid it, is jointly and severally liable unless able to prove that they did not know and in the exercise of reasonable care could not have known of the facts. Liability is not confined to the firm itself, is not limited to attorneys and accountants, and does not run to every employee regardless of the lack-of-knowledge defense.Uniform Securities Act (1956) §410(c)

A customer's account agreement says the customer waives any right to sue under the state securities law. What is the effect of this clause?

• a.It is valid, since a customer may waive any right by signing a clear written agreement with the firm
• b.It is valid, but only for claims that are less than the amount the customer invested
• c.It is void only if the customer is an individual rather than an institutional investor
• d.It is void, because a stipulation to waive compliance with the Act or a rule is unenforceable✓

Any condition, stipulation, or provision binding a person acquiring a security or receiving investment advice to waive compliance with the Act or any rule or order is void. The clause is not saved by a clear writing or by the size of the claim, and the voidness is not limited to retail customers.Uniform Securities Act (1956) §410(i)

An investment adviser is paid for advice and uses a scheme to defraud a client. What is the adviser's civil liability under §410(b)?

• a.Liability limited to refunding the advisory fee to the client, with no interest, costs, or attorneys' fees
• b.Liability only to the administrator, who then distributes any recovery among the affected clients
• c.No civil liability under §410, since it applies only to sales of securities and not to advisory services
• d.Liability for the fee paid and any loss caused by the advice, plus interest, costs, and attorneys' fees, less income✓

An adviser who defrauds a compensated client is liable to that person for the consideration paid for the advice and any loss due to the advice, with interest, costs, and reasonable attorneys' fees, less income received from the advice. Section 410(b) specifically addresses advisers, and the recovery runs to the client and not to the administrator.Uniform Securities Act (1956) §410(b)

A broker-dealer wishes to challenge a final order of the administrator revoking its registration. Within what period must it file a petition for review in court?

• a.Within one year after the hearing record closes
• b.Within sixty days after the order is entered✓
• c.Within thirty days of the date it becomes final
• d.Within ninety days after notice is mailed out

A person aggrieved by a final order of the administrator may obtain review in the appropriate court by filing a written petition within sixty days after the order is entered. The court reviews on the administrative record, and findings of fact supported by competent, material, and substantial evidence are conclusive. The period is sixty days running from the date the order is entered, so the thirty-day, ninety-day, and one-year alternatives are wrong, and finality, mailed notice, and the close of the hearing record do not start a different clock.Uniform Securities Act (1956) §411(a)

A firm files a timely petition in court to review an order suspending its registration. What is the effect on the order while the review is pending?

• a.The order is stayed automatically until the court rules on the petition
• b.The order stays in effect unless the court specifically orders a stay✓
• c.The order is stayed for sixty days and then takes effect unless the court extends
• d.The order is void until the administrator proves the grounds again in court

The commencement of review proceedings does not, unless specifically ordered by the court, operate as a stay of the administrator's order. The order therefore continues in effect, and the court must affirmatively grant a stay. No automatic or sixty-day stay exists, and the order is not voided by the filing.Uniform Securities Act (1956) §411(b)

A broker-dealer acts in good faith in conformity with an administrator's rule. A court later finds the rule invalid. What is the firm's liability for the earlier act?

• a.Full liability for the act, since a rule later held invalid gives no protection to a firm that relied on it
• b.None, since good-faith acts in conformity with a rule are protected even if the rule is later held invalid✓
• c.Liability only for the portion of the activity that occurred after the court's decision
• d.Liability unless the firm obtained a written opinion from the administrator before acting

No provision of the Act imposing liability applies to an act done or omitted in good faith in conformity with a rule, form, or order, even if it is later amended, rescinded, or held invalid. The protection does not require a written opinion and is not limited to the period after a court ruling.Uniform Securities Act (1956) §412(e)

In an administrative hearing, what is the general rule about public access, and the exception?

• a.Hearings are public unless any single respondent files a request that the hearing be held privately
• b.Hearings are private unless the administrator decides to open them to the general public
• c.Hearings are always public, and the administrator has no power to grant a request for a private hearing
• d.Hearings are public unless the administrator grants a request joined in by all respondents✓

Every hearing in an administrative proceeding is public unless the administrator, in discretion, grants a request joined in by all the respondents that it be held privately. One respondent's request is not enough, and the exception exists.Uniform Securities Act (1956) §412(f)

A broker-dealer asks the administrator whether a planned activity would lead to enforcement. The administrator replies in writing that no enforcement will follow. This reply is called:

• a.A no-action determination, which the administrator may issue and for which a fee may be charged✓
• b.A stop order, which blocks a registration statement and must follow notice and a hearing
• c.A cease and desist order, which prohibits the activity that the request described
• d.A consent order, which the parties sign and which becomes a court judgment once filed

The administrator in discretion may honor requests for interpretative opinions or may issue determinations that no enforcement proceedings will be instituted against specified persons for specified activities, and may charge a fee. A stop order concerns registration statements, a consent order is not the Act's term, and a cease and desist order prohibits conduct rather than approving it.Uniform Securities Act (1956) §413(e)

An out-of-state firm mails a written offer to buy a security from a state resident, and the resident receives it in the state. Where is the offer made?

• a.In the state only if the firm also has a registered agent working in the state
• b.In the state, because the offeror directed it to the state and it was received there✓
• c.Not in the state, because the offeror was physically outside the state when it mailed the offer
• d.Not in the state, because an offer is made only where the offeree accepts it

An offer is made in the state, whether or not either party is present there, when it originates from the state or is directed by the offeror to the state and received at the place to which it was directed. The offeror's location, the place of acceptance, and the presence of an agent are not the test.Uniform Securities Act (1956) §414(c)

A state resident, while on vacation in another state, telephones a broker-dealer based in a third state and accepts its offer to sell. Is the offer accepted in the resident's home state?

• a.No, because acceptance occurs only where the securities are physically delivered
• b.Yes, because any acceptance by a resident is accepted in the resident's home state
• c.Yes, because the buyer lives in the state and the securities will be delivered there
• d.No, because the acceptance was first communicated outside the home state✓

An offer is accepted in the state when acceptance is communicated to the offeror in the state and has not previously been communicated outside the state. Here the acceptance was communicated to the offeror outside the home state, so the home state does not treat it as accepted there. Residence of the buyer and the place of delivery are not the test.Uniform Securities Act (1956) §414(d)

A newspaper published in another state has 90 percent of its circulation outside the state where an investor lives, and a small number of copies are delivered into the investor's state. Is a securities advertisement in that newspaper an offer made in the investor's state?

• a.Yes, unless the newspaper first files a copy of the advertisement with the administrator in the investor's state
• b.No, but only if the advertisement was approved by the SEC before the newspaper published it
• c.Yes, because any copy delivered to a resident makes the advertisement an offer in the state where it is read
• d.No, because a bona fide, regularly paid-circulation newspaper published elsewhere makes no offer there✓

An offer is not made in the state when the publisher circulates, or it is circulated on the publisher's behalf in the state, a bona fide newspaper or publication of general, regular, and paid circulation that is not published in the state, or is published in the state but has had more than two-thirds of its circulation outside the state in the past twelve months. A few delivered copies, a state filing, or SEC approval do not change the result.Uniform Securities Act (1956) §414(e)

An investment adviser in another state, who is not registered where a client lives, telephones advice into that state. When does the state's investment adviser provision apply to the adviser's conduct?

• a.Only when the client first files a written complaint with the state's administrator
• b.When any act instrumental to the conduct is done in the state, even if neither party is present there✓
• c.Only when both the adviser and the client are physically present in the state during the advice
• d.Only when the adviser maintains a place of business or a branch office in the state

Sections 102 and 201(c), and §405 as to advisers, apply when any act instrumental in effecting prohibited conduct is done in the state, whether or not either party is then present in the state. Physical presence of both parties, a place of business, and a prior complaint are not required.Uniform Securities Act (1956) §414(f)

An applicant for broker-dealer registration must file what, in addition to its application, relating to lawsuits?

• a.An irrevocable consent appointing the administrator to receive service in non-criminal actions✓
• b.A surety bond equal to the firm's net capital, held to cover any judgments entered against it in the state
• c.A revocable consent allowing service on the administrator only for civil suits brought by customers of the firm
• d.A written agreement to submit every dispute with a customer to binding arbitration before a panel in the state

Every applicant for registration, and every issuer proposing to offer securities through an agent, must file an irrevocable consent appointing the administrator to receive service of any lawful process in any non-criminal suit, action, or proceeding arising under the Act. The consent is irrevocable, a bond is a different requirement, and arbitration is not mandated by the section.Uniform Securities Act (1956) §414(g)

A nonresident who never filed a consent to service commits fraud in connection with sales into the state. How can the state obtain jurisdiction in a civil action?

• a.Only after the nonresident enters the state voluntarily and is then served there in person
• b.It cannot, since no court in the state has jurisdiction over a nonresident who never filed a written consent
• c.Only through the nonresident's home state, whose administrator must bring its own action first
• d.The conduct counts as appointing the administrator to receive service, with notice mailed to the defendant✓

When a person, including a nonresident, engages in conduct prohibited or made actionable by the Act and has not filed a consent, that conduct is considered equivalent to appointing the administrator to receive service, and notice is sent to the defendant at the last known address. The state does not need the home state to act first or require personal service in the state.Uniform Securities Act (1956) §414(h)

An employee of the administrator's office uses non-public information from a registration filing to buy securities personally. This conduct is:

• a.Unlawful, since staff may not use for personal benefit information that is not public✓
• b.Lawful, since the employee is not a registrant and owes no duty to anyone under the Act
• c.Unlawful only if the employee actually earns a profit on the personal purchase
• d.Lawful if the employee buys only securities of issuers that are located in another state

It is unlawful for the administrator or any officer or employee to use for personal benefit any information filed with or obtained by the administrator that is not made public. The prohibition applies to the staff directly, and it does not depend on the issuer's location or on whether a profit results.Uniform Securities Act (1956) §406(b)

A broker-dealer mails its registration renewal on December 29. The administrator's office receives it on January 3. For purposes of the Act, when was the renewal filed?

• a.On December 29, because a document is filed on the day it is deposited in the mail
• b.On December 31, because every renewal received late is treated as made at year-end
• c.On January 10, because filings are effective seven days after receipt by the office
• d.On January 3, because a document is filed when the administrator receives it✓

A document is filed when it is received by the administrator, so mailing does not complete the filing. The renewal filed on January 3 arrives after the December 31 expiration. There is no year-end deeming rule or seven-day delay.Uniform Securities Act (1956) §413(a)

An agent resigns from Broker-Dealer Alpha on March 1 and is hired by Broker-Dealer Beta on June 15. How should her state registration be described for the period between those two dates?

• a.Effective for 30 days after March 1, as with a withdrawal application, and then suspended until Beta files its notice of her hiring
• b.Effective through the next December 31 renewal date, since it was issued to her as an individual rather than to Alpha as her employer
• c.Not effective, because an agent's registration runs only while she is associated with a particular registered broker-dealer or issuer✓
• d.Effective until the Administrator enters a cancellation order after a finding that she has ceased doing business as an agent

An agent's registration is not effective during any period when she is not associated with a specific registered broker-dealer or issuer, so she cannot transact business during the gap. It does not run to the year-end as a personal licence would. The 30-day period belongs to withdrawal applications, and no cancellation order is needed for the registration to be ineffective.Uniform Securities Act (1956, as amended by NASAA) §201(b)

A broker-dealer files its application for state registration on June 10. No denial order is in effect, no proceeding is pending, and the Administrator has not set an earlier date. When does the registration become effective?

• a.Only when the Administrator enters an order granting it, as with a security registered by qualification
• b.At noon on July 10, the thirtieth day after filing, since no order or proceeding has delayed it✓
• c.At noon on July 9, because the thirty days are counted beginning with the day of filing
• d.At noon on June 25, the fifteenth day after filing, the period for a hearing on a summary order

Absent a denial order or pending proceeding, registration takes effect at noon of the thirtieth day after filing; June 10 plus 30 days is July 10. The 15-day figure applies to hearings after a summary order, not to effectiveness. The count starts the day after filing, and no affirmative order is needed, unlike registration by qualification of a security.Uniform Securities Act (1956, as amended by NASAA) §202(a)

A registered investment adviser is reorganizing its advisory business into a new corporation that does not exist yet. How does the Act allow the successor to be registered?

• a.The predecessor's registration continues in the successor's name, with notice to the Administrator within 30 days of the closing
• b.The adviser may file an application for the successor before it exists, for the rest of the year and with no filing fee✓
• c.The successor files its own application once it is formed and pays a prorated fee for the months left in the calendar year
• d.The successor waits until the predecessor has withdrawn, then files a new application and pays the full annual registration fee

A registered adviser may file an application for a successor, whether or not the successor exists, for the unexpired part of the year, and no fee is charged. A prorated or full fee is not required, registration does not pass automatically to a new entity, and the predecessor need not withdraw first.Uniform Securities Act (1956, as amended by NASAA) §202(d)

Dana gives investment advice to clients from an office in State X. Her employer is headquartered in State Y and is registered with the SEC, not with any state. Must Dana register in State X?

• a.Yes, because a representative of a federal covered adviser with a place of business in the state must register unless exempt✓
• b.Yes, but only if she advised more than five clients in State X during the preceding twelve-month period
• c.No, as long as her employer has made its notice filing and paid the notice-filing fee to State X's Administrator
• d.No, because the employer's SEC registration extends to all of its employees in every state where the firm has advisory clients

The notice filing covers the firm, not its people: an investment adviser representative with a place of business in the state must register there even when the employer is a federal covered adviser. SEC registration of the firm does not pre-empt that, and the five-client de minimis test applies to out-of-state advisers with no place of business in the state.Uniform Securities Act (1956, as amended by NASAA) §201(d); §401(g)

A broker-dealer organized as a partnership has just become registered in the state. One of its partners also takes orders from the public. What must that partner do before taking orders?

• a.Nothing more, provided he owns at least 10% of the partnership capital and has passed the qualifying examination for agents
• b.File his own application, because every individual who effects transactions for the public needs a separate agent registration of his own
• c.Nothing more, because the firm's registration automatically covers any partner, officer or director who acts as an agent✓
• d.File his own application, which takes effect on filing and carries no fee because the partnership has already paid its own

A broker-dealer's registration automatically registers its partners, officers and directors who act as agents, so no separate filing is needed. The ownership threshold and exam condition are not part of the rule, and a same-day, no-fee application is not an alternative route.Uniform Securities Act (1956, as amended by NASAA) §202(a)

A registered investment adviser with discretionary authority over client accounts has financial resources well above the minimum the Administrator has set. The Administrator nevertheless asks it to post a bond. What is the Administrator's position under the Act?

• a.The Administrator may not require it, because no bond may be required of a registrant whose financial minimum is exceeded✓
• b.The Administrator may require it, in an amount capped at the total advisory fees the firm collected in the prior year
• c.The Administrator may require it, because discretionary authority over client accounts is by itself enough to justify a bond
• d.The Administrator may require it, but must accept a deposit of cash or securities in place of the bond if the adviser offers one

Bonds may be required of registrants with custody or discretion, but not of a registrant whose financial minimum exceeds the amount the Administrator requires. A cash deposit in lieu of a bond is the alternative only where a bond may be required at all, and the fee cap is not in the statute.Uniform Securities Act (1956, as amended by NASAA) §202(f)

Four months after an investment adviser's registration became effective, one of its officers is convicted of a misdemeanor involving securities. What must the adviser do about the application it has on file?

• a.Disclose it at the Administrator's next scheduled examination, which satisfies the duty to update
• b.Send notice to the SEC only, because the adviser's registration documents are a Form ADV filing
• c.File a correcting amendment promptly, since the information on file is now materially incomplete✓
• d.Wait for the December 31 renewal, when the next application will bring the record up to date

A registrant must promptly file a correcting amendment when a document on file becomes materially inaccurate or incomplete. Waiting for renewal or an exam leaves a misleading record on file in the meantime, and telling only the SEC does not satisfy the duty owed to the state Administrator.Uniform Securities Act (1956, as amended by NASAA) §203(d)

Examiners from the Administrator's office arrive unannounced at a registered broker-dealer and ask to inspect its required books and records. The manager refuses, saying that the Administrator must first serve a subpoena. Is the refusal correct?

• a.No, but only after the Administrator has given the firm 15 days' written notice of the planned examination
• b.No, required records are open to reasonable examination at any time; a subpoena is a separate investigative tool✓
• c.Yes, unless the Administrator's examiners are located in the same state in which the firm keeps its records
• d.Yes, an on-site inspection requires a subpoena once a firm has been registered in the state for more than one full year

Registrants' records are subject to reasonable periodic or special examination at any time, within or outside the state, without a subpoena; subpoenas under the investigation section serve a different purpose. The one-year rule, the in-state condition, and a 15-day notice requirement are not part of the examination power.Uniform Securities Act (1956, as amended by NASAA) §203(e); §407(b)

An outside director of a registered broker-dealer votes on firm policy at board meetings but has no contact with customers and never handles an order. Under the Act, is she an agent?

• a.Yes, unless the firm is a partnership rather than a corporation, in which case partners and directors are excluded
• b.No, but only while she owns less than 10% of the firm's voting stock, since a larger holder is treated as an agent
• c.Yes, because a director shares in the control of the firm's registered business and so stands in an agency relationship
• d.No, a director is an agent only if she otherwise represents the firm in effecting or attempting to effect transactions✓

The definition says that a partner, officer or director is an agent only if he or she otherwise comes within the definition by representing the firm in securities transactions. Title alone does not make someone an agent, the form of organization does not change the analysis, and ownership percentage is not part of the test.Uniform Securities Act (1956, as amended by NASAA) §401(b)