NASAA Series 66 — All Questions

The Uniform Securities Act permits the Administrator to require which of the following of a registered broker-dealer or investment adviser?

• a.A surety bond of at least $100,000 from every registered broker-dealer and adviser, regardless of its net capital
• b.A cash deposit with the Administrator equal to ten percent of the firm's annual gross commissions, held until the firm closes
• c.Minimum net capital or net worth, surety bonds where applicable, and the maintenance of specified books and records✓
• d.Prior written approval from the Administrator before the firm may open a branch office or hire any new agent in the state

The Administrator may by rule require registrants to meet minimum capital requirements, to post a surety bond where applicable, and to keep specified books and records. The bond is capped at $10,000 and is not required where net capital exceeds $25,000, so a flat $100,000 bond from every registrant is not authorized. The Act does not call for a cash deposit measured against gross commissions, and it does not make registrants obtain advance approval for each branch office or new hire.Uniform Securities Act (1956) Sections 202(d)-(e), 203(a)

Under NASAA model rules, a state-registered investment adviser that has CUSTODY of client funds or securities generally must maintain a minimum net worth of:

• a.Two hundred fifty thousand dollars, an amount matching the SEC's asset threshold for federal covered advisers with custody
• b.Ten thousand dollars, the very same figure required of an adviser that merely exercises discretion but never holds custody
• c.Nothing at all, because a surety bond may always be freely substituted for any and every net-worth requirement under the rules
• d.Thirty-five thousand dollars, and must promptly notify the Administrator if net worth falls below the minimum✓

NASAA's model minimum-financial-requirements rule sets $35,000 net worth for an adviser with custody and $10,000 for one with discretion but no custody. An adviser whose net worth drops below the minimum must notify the Administrator, typically by the next business day, and file a financial report.

A state-registered investment adviser that has discretionary authority over client accounts but does NOT have custody generally must maintain a minimum net worth of, or post a bond in the amount of:

• a.Fifty thousand dollars held in cash within a segregated account maintained at a qualified custodian bank at all times
• b.One hundred thousand dollars, an amount that escalates upward in step with the total assets the adviser has under management
• c.Thirty-five thousand dollars, the identical amount that is required whenever the adviser holds actual custody of client assets
• d.Ten thousand dollars, and if net worth is deficient the adviser must post a bond and notify the Administrator✓

NASAA model rules require $10,000 net worth for a state adviser with discretion but no custody. If net worth is or becomes deficient, the adviser must post a surety bond and notify the Administrator. The $35,000 figure applies to custody, not mere discretion.

Under the Uniform Securities Act, the Administrator may by rule or order require a minimum net capital for broker-dealers but may NOT:

• a.Impose a financial-responsibility requirement higher than, or different from, that imposed on a broker-dealer by the Securities Exchange Act of 1934✓
• b.Suspend a broker-dealer whose net capital has fallen below the prescribed minimum, after providing appropriate advance written notice and a full opportunity for a hearing on the record
• c.Prescribe recordkeeping requirements so that examiners are able to verify the firm's ongoing net-capital position at any time
• d.Require broker-dealers to file periodic financial reports demonstrating their continuing compliance with the applicable standard

Under NSMIA and USA §202/§203, a state may not impose broker-dealer capital, custody, margin, or recordkeeping requirements that differ from or exceed federal (1934 Act) requirements. The state may still require reports, examine, and discipline for deficiencies within the federal ceiling.

An investment adviser wants to charge a fee based on the average value of a client's account measured over a defined period. Under the Uniform Securities Act and NASAA rules this fee arrangement is:

• a.Permitted only if the client first signs a written form purporting to waive the substantive protections of the Advisers Act
• b.Permitted only for clients who are banks, insurance companies, registered investment companies, or other institutional investors
• c.Permitted, because a fee tied to a percentage of assets under management is not a performance-based fee✓
• d.Prohibited outright, because any advisory fee measured against the value of client assets is deemed a performance-based fee

A fee based on a percentage of assets under management is a standard, permitted advisory fee and is not a performance fee. IAA §205 and NASAA rules restrict only fees based on a SHARE of capital gains or appreciation, which require a qualified client. Asset-based and hourly/flat fees are broadly allowed.

When a state-registered investment adviser wishes to withdraw its registration, the withdrawal under the Uniform Securities Act generally becomes effective:

• a.Only after every last advisory client of the firm has first been formally transferred to another registered investment adviser
• b.On the very same day the Administrator receives the withdrawal filing, with no continuing jurisdiction retained thereafter
• c.Immediately upon the adviser simply ceasing to accept any new advisory clients within the borders of that particular state
• d.30 days after the filing of the withdrawal, unless a revocation or other proceeding is then pending✓

USA §204 provides that a withdrawal of registration generally becomes effective 30 days after filing (or such shorter period as the Administrator allows) absent a pending proceeding. Critically, the Administrator retains jurisdiction for one year to institute a revocation or suspension after withdrawal.

Under the Uniform Securities Act, after a registrant files to withdraw its registration, the Administrator retains jurisdiction to begin a revocation or suspension proceeding for a period of:

• a.Ninety days, matching the criminal referral window under the Act
• b.Six months, corresponding to the record-retention period for terminated agents
• c.One year after the withdrawal becomes effective✓
• d.Thirty days from the effective date of the withdrawal and no longer

USA §204 gives the Administrator continuing jurisdiction for one year following the effective date of a withdrawal to revoke or suspend the former registration. This prevents a registrant from escaping discipline by withdrawing after misconduct.

A registered agent leaves broker-dealer X and joins broker-dealer Y. Under the Uniform Securities Act, notice of the change generally must be given to the Administrator by:

• a.Both the agent AND both broker-dealers — the old firm, the new firm, and the agent✓
• b.No one, because registration transfers automatically between firms
• c.Only the two broker-dealers involved, since agents file nothing of their own
• d.Only the agent personally, who alone bears responsibility for keeping the registration current

USA §201 requires that when an agent begins or terminates a connection with a broker-dealer, the agent AND both the former and the new broker-dealer must promptly notify the Administrator. The obligation falls on all three parties, not just one.

Under the Uniform Securities Act, the Administrator may require an applicant for registration as an agent or investment adviser representative to:

• a.Post a surety bond of at least $100,000 before the Administrator will act on the application
• b.Hold a professional designation such as the CFP or CFA charter before the Administrator reviews the file
• c.Successfully pass a written or oral examination as a condition of registration✓
• d.Register as an individual with the SEC before applying to the state

The Administrator may require an examination, written or oral or both, as a condition of registering an agent or investment adviser representative. The bond authority is limited to $10,000 and is not required above $25,000 of net capital, so a $100,000 bond is not available. A professional designation may allow an exam waiver but is not a prerequisite. Agents and representatives register with the state, not as individuals with the SEC.Uniform Securities Act (1956) Section 204(b)(6); (2002) Section 412(e)

An investment adviser registered in a state and an agent are both required to keep their registrations current. Under the Uniform Securities Act, registrations of persons generally:

• a.Remain valid permanently once granted, with no renewal or fee required
• b.Expire on December 31 and must be renewed annually upon payment of the required fee✓
• c.Transfer automatically to a successor firm without any new filing
• d.Expire at the close of each calendar quarter and must accordingly be renewed on a quarterly basis

USA §202 provides that registrations of broker-dealers, agents, investment advisers, and IARs expire December 31 and must be renewed annually with the appropriate fee. Registration is not perpetual and does not transfer automatically.

Under the Uniform Securities Act, when a broker-dealer that is a sole proprietor dies or is otherwise incapacitated, the firm's registration:

• a.May be continued by a successor for the remainder of the registration period under the Act's succession provisions✓
• b.Is immediately and permanently canceled the instant the proprietor dies, with no continuation or succession of any kind allowed
• c.Converts by operation of law into a federal covered investment adviser registration administered directly by the SEC
• d.Automatically transfers to the deceased proprietor's estate, which may then operate the firm in perpetuity without any refiling

USA §202 succession provisions allow a successor firm to file and continue the business for the unexpired portion of the registration period, easing transitions on death, dissolution, or reorganization. The registration is not simply extinguished, nor does it perpetually pass to an estate.

A registered investment adviser reorganizes and forms a successor entity. Under the Uniform Securities Act, the successor firm's registration:

• a.Requires an entirely new registration fee to be paid immediately upon the reorganization formally taking effect
• b.May become effective for the unexpired portion of the current year, with any fee due at the next renewal✓
• c.Is barred entirely, because advisory registrations may under no circumstances be assigned to or succeeded to by another entity
• d.Cannot be granted at all until every single existing advisory client has re-executed a brand-new advisory contract

USA §202 permits a successor entity's registration to become effective for the unexpired term of the predecessor's registration; the filing fee for the successor is generally not due until the next renewal. This provides continuity through reorganizations without duplicate fees.

Under the Uniform Securities Act, registration of securities by QUALIFICATION differs from coordination and filing in that qualification:

• a.Requires simultaneous registration under the Securities Act of 1933 with the SEC, exactly as the coordination method does
• b.Becomes effective automatically twenty days after the federal registration statement is filed with the Commission
• c.Is the most demanding method, available to any issuer, with effectiveness set by the Administrator and the most extensive disclosure filed at the state level✓
• d.Is available only to those issuers that have already been publicly traded and filing continuous reports with the SEC for a period of at least five full years before the state filing is made

USA §304 registration by qualification is the most burdensome method, used chiefly for intrastate offerings with no federal registration. The issuer files the most extensive disclosure, and effectiveness occurs when the Administrator so orders. Coordination, by contrast, is tied to a concurrent 1933 Act filing.

Registration of securities by COORDINATION under the Uniform Securities Act generally becomes effective:

• a.At the same time the federal registration statement becomes effective, provided state conditions are met✓
• b.Exactly ninety days after the state filing is made, entirely regardless of the status of the federal registration statement
• c.At the precise moment the state application is first stamped as received by the Administrator's office staff
• d.Only after the Administrator has conducted a full merit review and approved the fairness of the offering price to investors

USA §303 registration by coordination becomes effective simultaneously with the federal registration statement's effectiveness under the Securities Act of 1933, so long as the state materials have been on file for the required period and other conditions are satisfied. State Administrators never conduct a merit-approval of price.

Under the National Securities Markets Improvement Act (NSMIA), securities that are 'federal covered' (such as those listed on a national exchange or issued by a registered investment company):

• a.Are subject to a full state merit review of their fairness before they may lawfully be sold to any resident of the state
• b.Are exempt from state registration, though states may still require a notice filing and retain antifraud authority✓
• c.May be sold only to institutional investors within any given state, and never to any individual retail investor there
• d.Must nonetheless still register at the state level using registration by qualification in each and every state of sale

NSMIA (1996) preempted state registration of federal covered securities, which include exchange-listed securities, securities senior to them, and investment-company shares. States may require a notice filing and fee and keep antifraud jurisdiction under USA §101, but they cannot impose registration or merit review.

Which of the following is an EXEMPT SECURITY under the Uniform Securities Act?

• a.An interest in a private oil-and-gas limited partnership that is marketed to investors through a broad general solicitation
• b.A variable annuity contract whose underlying sub-account values fluctuate directly with the performance of the securities markets
• c.A promissory note issued by a newly formed technology start-up company and sold directly to individual retail investors
• d.A commercial paper note maturing in nine months or less, rated in one of the top categories, issued for current operations✓

USA §402(a) exempts commercial paper with a maturity of nine months or less that is rated in a top category and issued for current transactions. Start-up notes, public partnership interests, and variable annuities are securities that are not automatically exempt. The exemption turns on the security's inherent character.

Under the Uniform Securities Act, which of the following is classified as an EXEMPT SECURITY rather than an exempt transaction?

• a.A private placement that is offered to no more than ten non-institutional buyers within the state over a twelve-month period
• b.A one-time isolated sale made by an executor in the course of settling the estate of a recently deceased individual investor
• c.A security issued or guaranteed by a foreign national government with which the United States maintains diplomatic relations✓
• d.An unsolicited purchase order that is received from an existing brokerage customer without any solicitation by the agent

USA §402(a) exempts securities issued or guaranteed by a foreign government with which the U.S. has diplomatic relations. The other choices describe exempt TRANSACTIONS under §402(b), which depend on how or to whom a security is sold rather than on the issuer's character.

A security is sold in a private placement under the Uniform Securities Act. To qualify as an exempt transaction, the offer generally may be directed to no more than:

• a.Ten persons in the state (other than institutional buyers) during any 12 consecutive months, with limits on commissions and resale intent✓
• b.Any number of buyers at all, so long as not a single one of them is a resident of the Administrator's own state at the time
• c.One hundred institutional and retail buyers combined, provided that each of them signs a formal written subscription agreement before the sale is completed
• d.Thirty-five accredited investors located anywhere nationwide, with unlimited general advertising expressly permitted throughout

USA §402(b) exempts a private-offering (limited-offering) transaction directed to not more than ten non-institutional persons in the state in 12 months, where the seller reasonably believes buyers are purchasing for investment and no commissions are paid to non-registered persons for soliciting retail buyers. Institutional buyers are not counted.

Under the Uniform Securities Act, an 'isolated non-issuer transaction' is an exempt transaction. The word 'non-issuer' means the transaction is:

• a.Conducted only between two registered broker-dealers acting as principals
• b.Not for the direct or indirect benefit of the issuer of the security being traded✓
• c.Effected only in securities issued by a governmental unit
• d.Limited strictly to securities that have never been registered anywhere in any jurisdiction

USA §401 defines a non-issuer transaction as one in which the issuer does not directly or indirectly benefit from the proceeds. An isolated non-issuer transaction (a one-off secondary trade) is exempt under §402(b) because it is not part of a regular securities business.

Which of the following would most likely qualify as an EXEMPT TRANSACTION under the Uniform Securities Act?

• a.A solicited sale of a non-exempt security made to an individual retail investor at that investor's private residence
• b.A door-to-door offering of speculative promissory notes made to first-time individual investors located in the state
• c.A transaction with a bank, insurance company, investment company, or other institutional investor✓
• d.A general newspaper advertisement inviting the investing public at large to purchase a new speculative mining stock

USA §402(b) exempts transactions with institutional investors such as banks, savings institutions, insurance companies, investment companies, and registered broker-dealers. These sophisticated buyers do not need the Act's registration protections. Solicited retail sales and public solicitations are not exempt transactions.

Under the Uniform Securities Act, when a security qualifies as a FEDERAL COVERED security, the state Administrator's remaining authority is generally limited to:

• a.Requiring a notice filing, collecting fees, and enforcing the antifraud provisions of the Act✓
• b.Requiring registration by coordination so the state can review the offering alongside the federal registration statement
• c.Conducting a merit review of the offering, but only when the security is not listed on a national exchange or market
• d.Requiring a state offering circular to be delivered to every resident purchaser before any sale is completed

For a federal covered security the state may require a notice filing and a fee, and it keeps its antifraud authority. It may not require state registration, whether by coordination or qualification, and it may not substitute its own merit review or disclosure document for the federal regime, even for securities that are not exchange-listed.Securities Act of 1933 Section 18(c) (15 U.S.C. 77r(c))

A security is initially sold in an exempt transaction. If a claim of exemption is challenged, under the Uniform Securities Act the burden of proving that the exemption applies rests with:

• a.The person claiming the exemption, such as the issuer, broker-dealer, or agent asserting it✓
• b.The state Administrator, who bears the burden of disproving the claimed exemption by clear and convincing evidence
• c.The federal courts, which alone decide every question concerning state securities exemptions entirely de novo
• d.The purchaser of the security, who is conclusively presumed to know all of the applicable statutory exemptions

USA §402(d) places the burden of proving an exemption (or an exception from a definition) on the person who claims it. If that person cannot establish the exemption, the transaction is treated as non-exempt and the registration requirements apply.

Under the Uniform Securities Act, a transaction by an executor, administrator, guardian, conservator, sheriff, or trustee in bankruptcy is:

• a.Subject to full securities registration, because a fiduciary acting in such circumstances is legally treated as an issuer
• b.An exempt transaction because it is effected by a fiduciary acting under legal authority✓
• c.Permitted only if the underlying security being sold is itself also independently an exempt security under the Act
• d.Prohibited entirely unless the fiduciary first personally registers as an agent within the state before acting

USA §402(b) exempts transactions executed by fiduciaries such as executors, administrators, guardians, conservators, sheriffs, marshals, receivers, and trustees in bankruptcy. These court-supervised or legally authorized sales are exempt regardless of whether the security itself is exempt.

A securities issued by a company subject to full and continuous SEC reporting and listed on the New York Stock Exchange is best characterized under the Uniform Securities Act as:

• a.A non-exempt security that must be registered by qualification in each and every state in which it is sold to residents
• b.A federal covered security whose state registration is preempted, though a notice filing may apply✓
• c.An exempt transaction that must nevertheless be reported to the state Administrator on a recurring quarterly basis
• d.A private security that is lawfully available only to accredited investors and to institutional investors in the state

Under NSMIA and USA §402, exchange-listed securities (and those senior or equal to them) are federal covered securities, formerly called 'blue-chip exempt.' State registration is preempted; the state may impose only a notice filing and keep antifraud authority.

Under the Uniform Securities Act, in the course of an investigation the Administrator has the power to:

• a.Impose a criminal fine or prison term on the respondent once the investigation shows a willful violation
• b.Seize a firm's client accounts and liquidate the assets on the Administrator's own authority, with no court order needed
• c.Administer oaths, subpoena witnesses and documents, and compel testimony, including in matters that cross state lines✓
• d.Order the SEC to revoke a federal covered adviser's registration on a nationwide basis and open a parallel inquiry

In an investigation the Administrator may administer oaths, subpoena witnesses and documents, and compel testimony and production, within or outside the state. Criminal fines and imprisonment come from a court after prosecution, not from the Administrator directly. Seizing and liquidating client accounts requires judicial involvement, and a state Administrator has no power to direct the SEC.Uniform Securities Act (1956) Section 407

Under the Uniform Securities Act, the criminal penalties for a willful violation generally include a maximum of:

• a.Three years in prison and a fine of five thousand dollars per willful violation✓
• b.Ten years in prison and unlimited fines, mirroring federal insider-trading statutes
• c.Only monetary penalties, since the Act provides no possibility of imprisonment
• d.One year in prison and a fine of one thousand dollars for any violation

USA §409 sets criminal penalties for a willful violation at up to 3 years imprisonment and a fine of up to $5,000 (the classic '3 and 5' at the model level). A person cannot be imprisoned for violating a rule or order of which they had no knowledge.

Under the Uniform Securities Act, a person may NOT be convicted and imprisoned under the criminal provisions if the person:

• a.Had already paid a civil penalty for the same underlying conduct
• b.Merely made a negligent misstatement rather than an intentional one during a sale
• c.Violated the Act while acting on the advice of unlicensed counsel
• d.Proves they had no knowledge of the rule or order that was violated✓

USA §409 provides that no person may be imprisoned for the violation of a rule or order if the person proves they had no knowledge of it. The state must also show a WILLFUL violation. Negligence and reliance on counsel are not the codified defenses; lack of knowledge of the rule/order is.

Under the Uniform Securities Act, criminal prosecutions for violations must generally be brought within:

• a.Three years without regard to when the violation was discovered
• b.Five years after the alleged violation, matching the record-retention period✓
• c.Two years after the buyer discovered or should have discovered the violation
• d.Ten years, the same period used for securities-related felony disqualification

USA §409 provides that no indictment or information may be returned more than five years after the alleged violation. This criminal statute of limitations is distinct from the civil-liability limitation (roughly two years after discovery or three years after the sale).

Under the Uniform Securities Act, the Administrator may seek an INJUNCTION against a person engaged in an act or practice that violates the Act by:

• a.Applying to the appropriate court, which may grant a temporary or permanent injunction and appoint a receiver✓
• b.Requiring the respondent to first consent to entry of the injunction before the Administrator may even seek it in court
• c.Issuing the injunction personally through an administrative order without any application to or involvement of a court
• d.Referring the matter exclusively to the SEC, which alone may bring the federal court action seeking the injunction

USA §408 authorizes the Administrator to APPLY TO A COURT for an injunction; only a court can issue one, and the court may also appoint a receiver over the defendant's assets. The Administrator's own orders (cease-and-desist under §204) are separate administrative remedies.

Under the Uniform Securities Act, the state Administrator's rulemaking and orders:

• a.May be adopted by the Administrator, but no provision of the Act imposes liability for an act done in good-faith conformity with a rule or order later amended or rescinded✓
• b.Require the prior written consent of the entire state legislature before any rule or order may lawfully take effect
• c.Automatically preempt and override any conflicting rule adopted by the SEC on the very same regulatory subject matter
• d.Are valid only when they are word-for-word identical to the corresponding rules that have been separately adopted by every other state securities Administrator across all of the states

USA §412 and related provisions let the Administrator make, amend, and rescind rules and orders necessary to carry out the Act; and no liability attaches for acts done in good-faith conformity with a rule or order, even if it is later changed or found invalid. State rules do not preempt the SEC.

The Uniform Securities Act gives a state Administrator jurisdiction over an offer to sell or to buy when the offer:

• a.Concerns a security already registered with the SEC, wherever the offer is made
• b.Appears in an out-of-state newspaper that circulates mostly outside the state
• c.Is broadcast by an out-of-state radio or television program
• d.Originates in the state, is directed into the state, or is accepted in the state✓

The Act reaches an offer that originates from the state, one that is directed into the state and received there, and an offer or acceptance that takes place in the state. SEC registration does not decide where an offer is made, and a bona fide out-of-state newspaper with mainly out-of-state circulation or an out-of-state broadcast is specifically not treated as an offer made in the state.Uniform Securities Act (1956) Section 414(c)-(d)

Under the Uniform Securities Act, when a radio or television broadcast or a bona fide newspaper offer originates outside the state, the Administrator generally does NOT have jurisdiction if:

• a.The security offered is exempt from registration under the Act, so the Administrator has no jurisdiction over any offer of it, whatever medium carries the offer
• b.The newspaper is published in the state but one-third or more of its circulation is outside the state
• c.The publication is not published in the state, or more than two-thirds of its circulation is outside the state (for broadcasts, the broadcast originates outside the state)✓
• d.The offeror has already registered the same security in the state where the newspaper is published

An offer is not treated as made in the state by a bona fide newspaper that is not published in the state, or that is published in the state but has more than two-thirds of its circulation outside it, or by a broadcast that originates outside the state. One-third of circulation outside the state is not enough. Exempt securities are still subject to the antifraud provisions, so the exemption does not remove jurisdiction, and registration of the security in another state is not part of the test.Uniform Securities Act (1956) Section 414(e)

Under the civil-liability provisions of the Uniform Securities Act, a buyer who was sold a security in violation of the Act may generally recover:

• a.The consideration paid plus interest, but only if the buyer proves the seller intended to deceive
• b.The consideration paid, less income received, plus interest and costs but not attorneys' fees, which each side must bear for itself
• c.Only the difference between the price paid and the security's market value on the day the suit is filed, with no interest, costs or attorneys' fees added
• d.The consideration paid plus interest at the statutory rate, and reasonable attorneys' fees and costs, less any income already received on the security✓

A buyer sold a security in violation of the Act may recover the consideration paid, plus interest at the statutory rate (six percent a year in the 1956 Act), costs and reasonable attorneys' fees, less any income received on the security. The seller carries the burden of proving it did not know, so the buyer does not have to prove intent to deceive. Attorneys' fees are included in the recovery rather than borne by each side, and the measure is the consideration paid, not a market-value difference at the time of suit.Uniform Securities Act (1956) Section 410(a)

Under the Uniform Securities Act, a person who offers to rescind a sale made in violation of the Act (a rescission offer) can cut off the buyer's right to sue if the buyer:

• a.Merely acknowledges the rescission offer verbally during a recorded telephone conversation within twenty-four hours
• b.Happens to be an institutional investor rather than an individual retail customer of the offering broker-dealer
• c.Fails to accept the written rescission offer within the specified period (commonly 30 days) after receiving it✓
• d.Has already filed a formal written complaint with the state Administrator concerning the very same transaction

USA §410 lets a seller make a written rescission offer (repaying price plus interest, less income). If the buyer does not accept within the stated period (often 30 days) after receipt, the buyer loses the right to bring the civil action. The offer must include the required financial terms and disclosures.

Under the Uniform Securities Act, liability for a violation may extend beyond the individual who made the sale to include:

• a.Only the seller itself, because the Act makes no one else answerable for the sale
• b.Every person who directly or indirectly controls the seller, and certain partners, officers, and employees who materially aided the sale, unless they lacked knowledge and could not reasonably have known✓
• c.Every employee of the seller's firm, whether or not the employee took any part in the sale
• d.Control persons and officers, but only after the buyer proves they actually knew of the violation

Liability extends to every person who directly or indirectly controls the seller, and to partners, officers, directors and employees who materially aid the sale, unless they prove they did not know and could not reasonably have known of the facts. Liability is not confined to the seller. It does not reach employees who took no part in the sale, and the burden is on the defendant to prove lack of knowledge, not on the buyer to prove knowledge.Uniform Securities Act (1956) Section 410(b)

Under the Uniform Securities Act, the Administrator may deny, suspend, or revoke a registration if it finds the action is in the public interest AND the applicant or registrant:

• a.Has recommended securities to clients that subsequently declined in market value through no fault of the registrant or the employing broker-dealer firm
• b.Has changed the particular broker-dealer with which the agent is associated at some point during the calendar year
• c.Has earned aggregate commissions during the year that happen to exceed a broad industry-average benchmark figure
• d.Has willfully violated the Act, been convicted of a securities-related felony within 10 years, or been enjoined from the securities business✓

USA §204 lists statutory causes for disciplinary action, including willful violations of the Act, a securities-related felony (or certain other crimes) within 10 years, injunctions, and insolvency. Every action requires a finding that it is in the public interest. Market losses and lawful commissions are not causes.

Under the Uniform Securities Act, before the Administrator enters a final order to revoke a registration (as opposed to a summary postponement or suspension), the registrant is generally entitled to:

• a.Appropriate prior notice, an opportunity for a hearing, and written findings of fact and conclusions of law✓
• b.An automatic trial by jury conducted before the state's highest appellate court prior to any revocation taking effect
• c.Immediate reinstatement of the registration pending the ultimate outcome of any administrative or judicial appeal
• d.A guaranteed monetary settlement paid by the Administrator to the registrant in lieu of holding any hearing at all

USA §204 requires the Administrator to give appropriate prior notice and opportunity for a hearing and to issue written findings before a final revocation order. The Administrator may summarily postpone or suspend pending final determination, but the registrant still receives notice and a hearing.

Under the Uniform Securities Act, a party aggrieved by a final order of the Administrator generally may:

• a.Obtain review directly from the U.S. Supreme Court within ten days
• b.Obtain judicial review by filing a petition in the appropriate court within 60 days of the order✓
• c.Demand a new evidentiary hearing before a different state's Administrator
• d.Only comply with the order, because a final order of the Administrator is immune from judicial review

USA §411 allows a person aggrieved by a final order to obtain judicial review by filing a written petition in the appropriate court, generally within 60 days of the order. Filing the petition does not by itself stay the order unless the court so directs.

Under the Uniform Securities Act, the Administrator may issue a summary order (for example, summarily suspending a registration or a securities registration statement) when:

• a.The Administrator personally disagrees with the pricing of an offering and, without any finding of harm, would simply prefer that the shares be sold to retail investors at a lower price in that state
• b.A client has made an unsubstantiated oral complaint about performance that the Administrator has not yet investigated or corroborated in any way
• c.A registrant's commissions in the prior calendar year were unusually high compared with the statewide industry average for other similar firms
• d.The Administrator finds prompt action is required in the public interest, subject to promptly notifying affected parties and granting a hearing if requested✓

USA §204/§306 allow the Administrator to act summarily (e.g., postpone or suspend) when the public interest requires prompt action, provided the Administrator promptly notifies the affected persons and holds a hearing if one is requested within the statutory period. Pricing disagreements and lawful commissions are not grounds.

The antifraud provisions of the Uniform Securities Act (Section 101 for sales and Section 102 for advisory activity) apply to:

• a.Only registered agents themselves, and never to issuers, broker-dealers, or investment advisers, no matter how the underlying transaction happens to be conducted
• b.Only transactions involving federal covered securities that were registered under NSMIA and later sold across two or more separate states
• c.Only those securities that are actually required to be registered by qualification or coordination within the particular state
• d.Any offer, sale, or advice concerning a security, including transactions and securities that are otherwise exempt from registration✓

USA §101 and §102 antifraud provisions reach ALL securities activity, including exempt securities and exempt transactions. An exemption from registration is never an exemption from the antifraud rules, and both agents and advisers are covered.

A person acting as an investment adviser makes a materially false statement to a client to induce advisory business. Under the Uniform Securities Act this conduct is addressed by:

• a.Section 202, which prescribes the detailed registration procedure and annual filing schedule for persons in the state
• b.Section 402, which lists the exempt securities and the exempt transactions recognized under the Act
• c.Section 102, prohibiting fraud and deceit in connection with rendering investment advice✓
• d.Section 301, which governs the registration of securities offerings by coordination and by qualification

USA §102 specifically prohibits fraudulent, deceptive, or manipulative conduct by a person who advises others about securities for compensation. It is the advisory analogue to §101 and applies regardless of whether the adviser is state-registered, federal covered, or exempt.

Under the Investment Advisers Act of 1940 as amended by Dodd-Frank, an investment adviser with $110 million or more in regulatory assets under management generally must:

• a.Register with the SEC as a federal covered adviser✓
• b.Register with its home state only, because SEC registration is not required until assets reach $150 million
• c.Register with the SEC only if it advises a registered investment company, and otherwise with its home state
• d.Register with the SEC and also with every state in which it has a client, since federal registration does not preempt the states

An adviser with $110 million or more in regulatory assets under management generally must register with the SEC and becomes a federal covered adviser, subject to the usual exceptions. The $110 million figure, not $150 million, is the registration threshold. The investment-company route is a separate basis for SEC registration at any size and is not a precondition above $110 million. Once an adviser is federal covered, states may not require it to register, so it does not also register in every state with a client.Investment Advisers Act of 1940 Section 203A(a); 17 CFR 275.203A-1(a)

A 'mid-size' investment adviser under the Investment Advisers Act generally has assets under management between $25 million and $100 million and:

• a.Registers with the SEC, because every adviser with over $25 million of assets under management is federal covered
• b.Registers with the SEC only if it advises a registered investment company, and otherwise needs no registration at all
• c.Registers with the SEC if it would otherwise have to register in at least five states, and with its home state if not
• d.Registers with the state (rather than the SEC) if the adviser's home state requires registration and subjects it to examination, and the adviser is not otherwise required to register with the SEC✓

A mid-sized adviser, with between $25 million and $100 million in assets, is generally prohibited from registering with the SEC if its home state requires it to register and examines it, unless an exception applies, such as advising a registered investment company. The $25 million figure is the floor for being eligible for the SEC, not an automatic requirement. The investment-company exception does not make every other mid-sized adviser exempt, and the multi-state exception is triggered by registration in 15 or more states, not five.Investment Advisers Act of 1940 Section 203A(a)(2)

An investment adviser is registered with the SEC and its regulatory assets under management decline. Under SEC rules, to avoid switching between SEC and state registration on small fluctuations, an adviser must generally withdraw from SEC registration only when its AUM falls below:

• a.$100 million, the cutoff for state registration, with withdrawal required at once when assets fall under it
• b.$90 million, a buffer below the $110 million registration threshold✓
• c.$25 million, the statutory floor for SEC registration, the only figure that matters on the way down
• d.$110 million, the same figure that triggers registration

To avoid switching back and forth on small fluctuations, the rule requires an SEC-registered adviser to withdraw only when its assets fall below $90 million. The $110 million figure is where registration becomes required, and $100 million is the point at which an adviser may register, so an adviser does not leave at either figure. The $25 million figure is the old floor and plays no role in the withdrawal buffer.17 CFR 275.203A-1(a)(1)

Under the Investment Advisers Act, which adviser is generally EXEMPT from SEC registration under the 'private fund adviser' exemption?

• a.An adviser to a registered open-end investment company (a mutual fund) as well as to several closed-end funds offered publicly
• b.An adviser solely to private funds with less than $150 million in private-fund assets under management in the United States✓
• c.An adviser that holds itself out to the general public and actively takes on retail separately managed accounts across many states
• d.An adviser managing $500 million in a single publicly offered fund composed entirely of retail investors and pensioners

IAA §203(m) and Rule 203(m)-1 exempt an adviser that acts solely as an adviser to private funds and manages less than $150 million in private-fund assets in the U.S. Advisers to registered investment companies or to retail SMAs do not qualify for this private-fund exemption.

An investment adviser that provides advice to registered investment companies (mutual funds) under the Investment Advisers Act must:

• a.Register with the SEC regardless of the amount of assets it has under management✓
• b.Register with its home state until it reaches $110 million, then switch to the SEC
• c.Avoid registration, because the Investment Company Act already regulates the funds it advises
• d.Register with the SEC and every state where a shareholder of the fund lives

An adviser to a registered investment company registers with the SEC whatever the size of its assets under management. No $110 million minimum applies to that route. The Investment Company Act regulates the fund, but it does not exempt the fund's adviser from Advisers Act registration. Once the adviser is federal covered, states cannot also require registration based on where fund shareholders live.Investment Advisers Act of 1940 Section 203A(a)(1)

Under the National Securities Markets Improvement Act (NSMIA), when an adviser is a FEDERAL COVERED adviser registered with the SEC, an individual state may still:

• a.Conduct a full net-capital, minimum-financial, books-and-records, and custody examination that entirely duplicates the SEC's own periodic examination, and impose its own recordkeeping rules on the adviser
• b.Set and enforce the maximum advisory fee schedule the federal covered adviser may charge to residents of that particular state
• c.Force the federal covered adviser to register with the state as an investment adviser before it may accept any client there
• d.Require the adviser to file a notice (a copy of documents filed with the SEC), pay state fees, and require IARs with a place of business in the state to register, and retain antifraud authority✓

The federal law preempts state registration, examination and recordkeeping rules for an SEC-registered adviser, but it preserves some state authority. A state may require a notice filing (a copy of the documents filed with the SEC), collect fees, license investment adviser representatives who have a place of business in the state, and enforce its antifraud provisions. It may not duplicate the SEC's examination or impose its own recordkeeping rules, set the adviser's fees, or require the firm itself to register as a state adviser.Investment Advisers Act of 1940 Section 203A(b)

An investment adviser representative works for a FEDERAL COVERED adviser and has a place of business in State X. Under the Uniform Securities Act and NSMIA, this IAR:

• a.Registers separately in every single state where any one of the employing adviser's clients happens to live, work, or maintain a mailing address
• b.Never registers anywhere at all, because the employing adviser's federal covered status fully shields each of its representatives
• c.Registers directly with the SEC as an individual investment adviser representative on Form ADV alongside the firm
• d.Registers as an IAR in State X, because states retain authority to license IARs who have a place of business in the state✓

A state may license an investment adviser representative of a federal covered adviser if the representative has a place of business in that state, so this representative registers in State X. Federal covered status of the employer does not exempt every representative from state licensing. The SEC does not register individual representatives, and a representative does not register in every state where a client of the firm lives.Investment Advisers Act of 1940 Section 203A(b)(1)(A)

Under the Investment Advisers Act, the SEC's brochure rule (Rule 204-3, delivering Form ADV Part 2) generally requires an adviser to deliver the brochure:

• a.Before or at the time of entering into the advisory contract, and then annually within 120 days of fiscal year end if there are material changes, either the brochure or a summary of changes✓
• b.Once every five years on a fixed schedule matched to the adviser's books-and-records retention period, with no delivery required when the contract is signed
• c.Only at the client's written request, made at any time after the advisory relationship begins, with no delivery required before then
• d.Before or at the time of entering into the advisory contract, and then every year whether or not anything in the brochure has changed, together with a new Form ADV Part 1

Rule 204-3(b) requires delivery of the current brochure before or at the time the adviser enters into the advisory contract. After that, the adviser delivers annually, within 120 days after the end of its fiscal year, either the current brochure or a summary of material changes, but only if there have been material changes since the last annual updating amendment. A five-year cycle appears nowhere in the rule, delivery cannot wait for a client request, and Form ADV Part 1 is not part of the brochure delivered to clients.Investment Advisers Act Rule 204-3(b), 17 CFR 275.204-3(b)

Under NASAA model rules, a state-registered investment adviser's brochure (Form ADV Part 2) must be delivered to a prospective client:

• a.Within 30 calendar days after the client's very first advisory fee payment has cleared, been credited to the adviser's operating account, and been reconciled against the custodian's statement
• b.At least 48 hours before entering into the advisory contract, OR at the time of entering the contract if the client is given a right to rescind within five business days without penalty✓
• c.Only at the client's specific written request, with absolutely no automatic delivery required at or before the contract is signed
• d.Once per calendar year, delivered on the anniversary date of the adviser's original state registration order

The NASAA state brochure rule requires delivery at least 48 hours before the contract, or at signing IF the client has a 5-business-day right to withdraw without penalty. This 48-hour/5-day feature is a key state-level distinction from the plain federal rule.