Question 1

While on vacation in Colorado, Mr. Moneybags became interested in the stock of a company called SafeAway, which designs and installs customized high-tech security systems in the multimillion dollar mansions located in Colorado’s pricier ski resort areas, such as Vail and Aspen. Upon returning to his home in Boston, he calls his broker-dealer with an order to purchase 10,000 shares of the stock, which he learned trades in the over-the-counter market. Fast Eddie, a registered agent with his broker-dealer, discovers that SafeAway’s stock is registered only in the states of Colorado and Wyoming. Neither Fast Eddie nor his broker-dealer are registered to do business in either of those states. Under these circumstances,

Options :

A :

Fast Eddie cannot effect Mr. Moneybags purchase of SafeAway stock since neither he nor his broker are registered to do business in Colorado or Wyoming, and SafeAway stock is not registered for sale in the state of Massachusetts.

B :

Fast Eddie can execute the trade for Mr. Moneybags since this would be considered an exempt transaction because it is a private placement.

C :

Fast Eddie should contact a broker-dealer that is registered in either Colorado or Wyoming and negotiate a finder’s fee for referring Mr. Moneybags to them.

D :

Fast Eddie can execute the trade for Mr. Moneybags since this would be considered an exempt transaction because it is an unsolicited transaction.

Answer: D

Question 2

Registration by coordination is provided for by which of the following federal securities acts?

Options :

A : Securities Act of 1933

B : Securities and Exchange Act of 1934

C : Investment Advisers Act of 1940

D : Investment Company Act of 1940

Answer: A

Question 3

Which of the following statements would not be in violation of NASAA rules regarding the sale of investment company shares? I. “Investing your money in shares of this money market mutual fund is identical to putting your money in a savings account at a bank, except the money market fund provides a higher return.” II. “Our U.S. government bond fund is invested only in government bonds issued by the U.S. government and is, therefore, a risk-free investment.” III. “You are investing $22,000 in this fund today. The fund has a 5% load at this investment level, but if you sign a letter of intent to invest another $3,000 within the next 13 months, your load will be reduced to 4%. If something comes up and you can’t invest the extra $3,000 within 13 months, you will only need to pay the difference in the two loads.”

Options :

A : I only

B : I and II only

C : III only

D : I, II, and III

Answer: C

Question 4

Vious and Associates is a small broker-dealer trying to generate more business. To this end, the firm had a professional four-color brochure printed that provides the years of industry experience of its management along with other information. The firm’s founder, Ms. D. Vious, is listed as having over 30 years of experience in the industry. Ms. D. Vious has worked for broker-dealers for over 30 years, but for 20 of those 30 years, she was a secretary. Has D. Vious violated any securities laws?

Options :

A :

No. Technically, Ms. D. Vious does have over 30 years of experience in the industry, even though it was not in the capacity of an agent or a broker-dealer.

B : No. Ms. D. Vious’ years of experience is not a material fact that would affect an investor’s investment decision.

C :

Yes. The broker-dealer is making a misleading statement in an advertising brochure in order to convince investors to do business with the firm.

D : No. Advertising brochures are not securities.

Answer: C

Question 5

Which of the following trades is illegal?

Options :

A : a short sale

B : a margin transaction

C : a market-not-held order

D : the sale of a mutual fund if the purchaser hasn’t received a prospectus

Answer: D

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