Which of the following statements are TRUE about rules created by the Administrator Quizlet

The Uniform Securities Act provides that which of the following statements is/are correct with regard to post registration provisions for registered IA's whose principal place of business is in a given state?

I. The IA is responsible for scheduling the annual state examination of books and records with the Administrator.
II. The filing of financial statements with the state may be a requirement.
III. By rule or order, the IA must maintain certain records per the Administrator.
IV. If the Form ADV becomes materially inaccurate, it is the IA's responsibility to update the form.

[A] I and IV only
[B] I, III, and IV only
[C] II, III, and IV only
[D] I, II, III, and IV

Under the provisions of the Alternative Minimum Tax (AMT), accelerated depreciation, excess depletion, and excess intangible drilling costs are all items that may be added back to an investor's taxable income. Incentive stock options are a type of company stock option given to employees as part of their compensation. Under the AMT, employees must include, as part of their income, the difference between the fair market value and the purchase price (exercise price) at the time of exercise. Choice (a) is the correct choice, since employees do not choose the greater of the two. Depletion is the using up of a natural resource. Depletion allowance, then, gives the owner the ability to account for the reduction (production) of reserves as a product is produced and sold. For accounting purposes, depreciation indicates the amount of an asset's value that has been used up. For tax purposes, businesses may deduct the costs of the tangible assets they purchase as business expenses; however, businesses must depreciate these assets in accordance with IRS rules. Accelerated depreciation is a method used to claim greater deductions in the earlier years of an asset's life. (A)

Although it would be very time-consuming to calculate a mortgage amortization schedule without a complex financial calculator, the first payment can be found as follows. The amount of interest for the first month is found by multiplying the principal by the annual interest rate and then dividing by 12. $200,000 x 7% = $14,000, divided by 12 equals $1,166. If the total mortgage payment is $1,797, the principal being repaid would be $631 (1,797 - 1,166). The percentage of interest and principal would be 65% interest (1,166 / 1,797) and 35% principal (631 / 1,797).

The amount of interest and principal will change every month as the principal is being paid off. The second monthly interest amount would be found by taking the new principal amount of $199,369 ($200,000 - $631), multiplying by the interest rate, and then dividing by 12. $199,369 x 7% = $13,955 divided by 12 equals $1,162. This process would continue for the term of the loan. (D)

Joe Jones, the proprietor of Joe Jones Financial Planning Inc., which is registered as an investment adviser in New York State, has decided that he can expand his business by setting up an Internet website. He includes a questionnaire that solicits individuals to transmit information about their investment objective, financial situation, financial needs, risk tolerance level and investment time horizon, which he will use to create a financial model and plan for a fee. Which statement is TRUE?

StatusA A. Joe Jones Financial Planning Inc. must register with the SEC as an investment adviser, but is not required to register as an investment adviser in each State where customers complete the questionnaire
Correct Answer B. Joe Jones Financial Planning Inc. is not required to register with the SEC as an investment adviser, but the firm is required to register as an investment adviser in each State where customers complete the questionnaire
Incorrect Answer C. Joe Jones Financial Planning Inc. is required to register with the SEC as an investment adviser, and the firm is required to register as an investment adviser in each State where customers complete the questionnaire
StatusD D. Joe Jones Financial Planning Inc.'s current New York State registration is the only requirement

B

Which of the following are requirements for an internet communication (a website) posted by a broker-dealer, agent, investment adviser or investment adviser representative?
I The communication must be limited to the dissemination of general information on products or services
II The communication must include a firewall or other implemented procedure to ensure that prior to any subsequent communication with prospective clients in the State, that the broker-dealer, agent, investment adviser, or investment adviser representative are registered in the State, or are exempt or excluded from registration
III The communication must include a legend that states that: "The broker-dealer, agent, investment adviser or investment adviser representative may only transact business in the State if registered in the State or if exempted or excluded from registration"
IV The communication must include a legend that states that: "Follow ups or individualized responses to persons in the State by the broker-dealer agent or investment adviser representative that involve either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made absent compliance with State registration requirements or an applicable exemption or exclusion."

StatusA A. I and II only
StatusB B. III and IV only
StatusC C. I, II, III
Correct D. I, II, III, IV

D

NASAA has a Model Rule covering "Business Continuity and Succession Planning for Investment Advisers" (Broker-Dealers are already covered under a similar FINRA rule). It states that every investment adviser must establish, implement and maintain a Business Continuity Plan based on the facts and circumstances of the RIA's business model including the size of the firm, types of services provided, and number of locations of the investment adviser. The plan must provide, at a minimum, for:

o The protection, backup, and recovery of books and records;
o Alternate means of communicating with customers, key personnel, employees, vendors, service providers and regulators, including providing notice to these persons of significant business interruption, cessation of business activities or death or unavailability of key personnel;
o Office relocation in the event of temporary or permanent loss of a principal place of business;
o Assignment of duties to qualified persons in the event of death or unavailability of key personnel; and
o Minimizing service disruptions and client harm that could result from a significant business disruption.

Under NASAA rules, each Registered Investment Adviser must establish, implement and maintain a Business Continuity and Succession Plan that covers all of the following items EXCEPT:

StatusA A. the protection, backup, and recovery of books and records
StatusB B. alternate means of communicating with customers, key personnel, employees, vendors, service providers and regulators, including providing notice to these persons of significant business interruption, cessation of business activities or death or unavailability of key personnel
StatusC C. minimization of service disruptions and client harm that could result from a significant business disruption
Correct D. announcement to the public in local newspapers and on the internet the fact that a significant business interruption has occurred

D

NASAA has a Model Rule covering "Business Continuity and Succession Planning for Investment Advisers" (Broker-Dealers are already covered under a similar FINRA rule). It states that every investment adviser must establish, implement and maintain a Business Continuity Plan based on the facts and circumstances of the RIA's business model including the size of the firm, types of services provided, and number of locations of the investment adviser. The plan must provide, at a minimum, for:

o The protection, backup, and recovery of books and records;
o Alternate means of communicating with customers, key personnel, employees, vendors, service providers and regulators, including providing notice to these persons of significant business interruption, cessation of business activities or death or unavailability of key personnel;
o Office relocation in the event of temporary or permanent loss of a principal place of business;
Ao ssignment of duties to qualified persons in the event of death or unavailability of key personnel; and
o Minimizing service disruptions and client harm that could result from a significant business disruption.

Hedge fund investment advisers often form limited partnerships and offer their customers/investors partnership units where the adviser acts as the general partner. In such a situation, the hedge fund collects an advisory fee and also charges a management fee for managing the fund.
Thus, the adviser is not "disinterested" when he or she places advisory customers into the fund, because a second layer of fees will be earned by the adviser. This is not prohibited, but it is a potential conflict of interest that must be disclosed to the customer at, or prior to, the customer purchasing a fund unit. Choice D is not correct because Regulation D does not define an "accredited" investor based on the size of the investment made. Rather, it is based on annual income (at least $200,000 for an individual) or net worth (at least $1,000,000).

It sure looks like this account is being "churned," which is a prohibited business practice. However, if the trades in the account are consistent with the customer's investment objectives and needs, then it is OK! Furthermore, "high commissions" are consistent with giving a customer investment advice, recommendations and hand holding. In this example, the results are not good, but that can happen to anyone! The problem with this question is that Choice A is reasonable - if the trades were unsolicited, then the high trading activity has nothing to do with the broker's recommendations. However, charging high commissions for unsolicited trades is unethical; the commission charge is supposed to reflect the level of service provided by the broker. Choice D is also not bad - but you could have a situation where an account has high trading activity, high commission costs and inferior results - this would be OK as long as they are the result of suitable recommendations being made to that customer.

Legitimate promissory notes are marketed to sophisticated, corporate investors that have the ability to thoroughly research the company issuing the notes and determine whether the issuer will be able to repay principal and interest.

However, there have been many instances of "promissory note fraud" where unlicensed individuals push bogus promissory notes that are sold as investments that offer above-market fixed interest rates and safeguarding of principal - and most of these are frauds. This is a major concern to State regulators.

To offer a promissory note, both the salesperson and the note must be registered in the State. Only promissory notes that have maturities of 9 months or less, that are investment grade, and that are sold in minimum increments of $50,000 are exempt from State registration. Thus, smaller note offerings (under $50,000 amount) to smaller investors are non-exempt and must be registered; and unrated note offerings or non-investment grade rated note offerings must also be registered in the State.

Finally, the tell-tale signs of fraud in promissory note offerings are:

o Statements that the notes are "guaranteed" or "insured" - especially by bogus foreign entities
o Promises of above-market rates of return (an above-market rate of return is not offered by a "low-risk" investment, but rather by a high-risk investment)
o Statements that the notes are "risk-free" (these are corporate issues that have risk of default)
o The labeling of a start-up company's notes as "prime" (since only established companies with a history of operations and earnings can be called "prime")
o Offers of promissory notes from a stranger who does not know the customer's financial situation

Legitimate promissory notes are marketed to sophisticated, corporate investors that have the ability to thoroughly research the company issuing the notes and determine whether the issuer will be able to repay principal and interest.

However, there have been many instances of "promissory note fraud" where unlicensed individuals push bogus promissory notes that are sold as investments that offer above-market fixed interest rates and safeguarding of principal - and most of these are frauds. This is a major concern to State regulators.

To offer a promissory note, both the salesperson and the note must be registered in the State. Only promissory notes that have maturities of 9 months or less, that are investment grade, and that are sold in minimum increments of $50,000 are exempt from State registration. Thus, smaller note offerings (under $50,000 amount) to smaller investors are non-exempt and must be registered; and unrated note offerings or non-investment grade rated note offerings must also be registered in the State.

Finally, the tell-tale signs of fraud in promissory note offerings are:

o Statements that the notes are "guaranteed" or "insured" - especially by bogus foreign entities
o Promises of above-market rates of return (an above-market rate of return is not offered by a "low-risk" investment, but rather by a high-risk investment)
o Statements that the notes are "risk-free" (these are corporate issues that have risk of default)
o The labeling of a start-up company's notes as "prime" (since only established companies with a history of operations and earnings can be called "prime")
o Offers of promissory notes from a stranger who does not know the customer's financial situation

Legitimate promissory notes are marketed to sophisticated, corporate investors that have the ability to thoroughly research the company issuing the notes and determine whether the issuer will be able to repay principal and interest.

However, there have been many instances of "promissory note fraud" where unlicensed individuals push bogus promissory notes that are sold as investments that offer above-market fixed interest rates and safeguarding of principal - and most of these are frauds. This is a major concern to State regulators.

To offer a promissory note, both the salesperson and the note must be registered in the State. Only promissory notes that have maturities of 9 months or less, that are investment grade, and that are sold in minimum increments of $50,000 are exempt from State registration. Thus, smaller note offerings (under $50,000 amount) to smaller investors are non-exempt and must be registered; and unrated note offerings or non-investment grade rated note offerings must also be registered in the State.

Finally, the tell-tale signs of fraud in promissory note offerings are:

Statements that the notes are "guaranteed" or "insured" - especially by bogus foreign entities
Promises of above-market rates of return (an above-market rate of return is not offered by a "low-risk" investment, but rather by a high-risk investment)
Statements that the notes are "risk-free" (these are corporate issues that have risk of default)
The labeling of a start-up company's notes as "prime" (since only established companies with a history of operations and earnings can be called "prime")
Offers of promissory notes from a stranger who does not know the customer's financial situation

Legitimate promissory notes are marketed to sophisticated, corporate investors that have the ability to thoroughly research the company issuing the notes and determine whether the issuer will be able to repay principal and interest.

However, there have been many instances of "promissory note fraud" where unlicensed individuals push bogus promissory notes that are sold as investments that offer above-market fixed interest rates and safeguarding of principal - and most of these are frauds. This is a major concern to State regulators.

To offer a promissory note, both the salesperson and the note must be registered in the State. Only promissory notes that have maturities of 9 months or less, that are investment grade, and that are sold in minimum increments of $50,000 are exempt from State registration. Thus, smaller note offerings (under $50,000 amount) to smaller investors are non-exempt and must be registered; and unrated note offerings or non-investment grade rated note offerings must also be registered in the State.

Finally, the tell-tale signs of fraud in promissory note offerings are:

o Statements that the notes are "guaranteed" or "insured" - especially by bogus foreign entities
o Promises of above-market rates of return (an above-market rate of return is not offered by a "low-risk" investment, but rather by a high-risk investment)
o Statements that the notes are "risk-free" (these are corporate issues that have risk of default)
o The labeling of a start-up company's notes as "prime" (since only established companies with a history of operations and earnings can be called "prime")
o Offers of promissory notes from a stranger who does not know the customer's financial situation

Which statements are TRUE about civil suits brought under the provisions of the Uniform Securities Act?

I A civil suit may be brought by any person who has been damaged by the actions of a broker-dealer, investment adviser or their agents
II If the plaintiff wins the suit, the seller is liable to the buyer for the cost of the securities, any interest earned, legal fees, and court costs
III The seller will not be held liable by the court if, in the exercise of reasonable care, he or she could not have known about the untrue statement or misleading omission of fact
IV Third parties that have a financial interest in the seller's actions can also be held liable under the Act

StatusA A. I and II
StatusB B. III and IV
StatusC C. I, II, III
Correct D. I, II, III, IV

D