Question 1

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 2

According to the NASAA Model Rules, a broker-dealer is not permitted to allow a customer to engage in margin transactions unless

Options :

A : the broker-dealer already has a margin agreement signed by the client in hand.

B : the broker-dealer receives a margin agreement signed by the client promptly after the client’s first margin transaction.

C : the client has a net worth of at least $500,000.

D : the client has been a customer of the firm for at least 6 months.

Answer: B

Question 3

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

Question 4

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 His license to do business as an investment adviser in the state has been revoked.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

Question 5

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

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