Question 1

Ken Con is an agent with Blue Sky Broker-Dealers. He gets up early each morning so that he can study any late-breaking news that may affect the markets and figure out ways to incorporate this news into conversations with select clients in order to pressure them to restructure their portfolios by selling holdings they have in one particular industry to invest the money in another particular industry. Ken has been very successful with this strategy and executes more trades for his clients than any other agent with the firm, but is he in danger of losing his license?

Options :

A : Yes. Ken is engaging in churning, a prohibited practice and can have his license revoked or suspended.

B : It depends. If his clients have lost money, Ken may lose his license; but if a review indicates that his clients’ accounts earn profits, then his license is safe.

C : Yes. Ken is guilty of the prohibited practice of “tailgating.”

D : No. Ken is just a successful sales person who is working harder than the other agents in the firm.

Answer: A

Question 2

Mr. Noah Scruples is a registered representative with CanDo Broker-Dealers. A client calls and wants Noah to purchase shares of a mutual fund the client has read about. CanDo is not authorized by this particular fund to effect purchases or sales of the fund shares. Can Noah execute the order anyway?

Options :

A : No. This would be considered money laundering, which is highly illegal.

B : No. This is a prohibited practice known as selling away.

C : No. This is a prohibited practice known as front running.

D : Yes. Since this is an unsolicited trade, Noah can execute the transaction on behalf of his client.

Answer: B

Question 3

Investment Adviser Foo Lish, LLC has begun serving as a custodian of its clients’ assets. Foo Lish, LLC must now I. file a new U-5 form with the Administrator. II. meet higher net capital requirements than before. III. file an updated Form ADV with the Administrator. IV. pay a CPA to do an annual unannounced audit of the firm.

Options :

A : I, II, III, and IV

B : II, III, and IV only

C : II and III only

D : I and II only

Answer: B

Question 4

Under the NASAA Model Rules, which of the following must an investment adviser provide its clients with at least once a year?

Options :

A : the total number of agency cross transactions completed for the client during the period

B : the total amount of commissions or other compensation that the investment adviser received or expects to receive in connection with agency cross transactions performed for the client during the period

C : the number of any complaints that each of its investment adviser representatives has received during the period

D : both A and B

Answer: D

Question 5

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

Options :

A : Sam can move to another state and apply for registration as an investment adviser there.

B : Sam has 45 days in which to file an appeal with the attorney general.

C : Sam can register with the SEC as an investment adviser, which will exempt him from state registration requirements.

D : Sam has 60 days to file an appeal of the decision in a court of law.

Answer: D

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