Section 3 (Qs) - Securities Fraud

Front 1

Which of the following is an example of insider trading?

A. An individual buys a company's shares because the company operates in an industry that is growing rapidly.

B. An employee sells shares of his company stock because he knows that the company is about to publicly announce it is filing for bankruptcy.

C. An individual sells his shares in a company after reading a news article about an explosion at the company's Factory.

D. A bank manager tells a customer that the interest rates for a 30-year mortgages have reached an all-time low.

Back 1

An employee sells shares of his company stock because he knows that the company is about the publicly announced it is filing for bankruptcy

Front 2

According to the US Uniform Securities Act of 2002, a model act from which many state Securities laws are based, certain conditions must be in place before a security can be sold or offered for sale. Which of the following correctly lists those conditions that must be present?

A. A registration in place to cover the security, the listing of the security on a National Stock Exchange, and a registered broker-dealer.

B. A registration in place to cover the security, a registered Securities professional, and full and fair disclosure of all material information.

C. A registration in place to cover the security, full and fair disclosure of all material information, and an Administration agency to arbitrate Securities lawsuits.

D. The registration in place to cover the security, the listing of the security on a National Stock Exchange, and an Administration agency to arbitrate Securities lawsuits.

Back 2

Your registration in place to cover the security, a registered Securities professional, and full and fair disclosure of all material information

Front 3

General Partners have management responsibility for the Enterprise and assume liability for the partnership debts.

Back 3

True

Front 4

All of the following are red flags indicating that an entity is operating a security business without the proper license or registration except:

A. Prior customer complaints

B. Justified gaps in a promoters work history

C. A history of regulatory problems

D. Agents with criminal records

Back 4

Justified gaps in a promoters work history

Front 5

To determine whether a registered person is excessively trading Securities on a customer account for the purpose of generating commissions, a fraud examiner should calculate:

A. The percentage of change in conditions between accounting periods by dividing the amount of increase or decrease for each trade by the base period amount.

B. The amount of monthly gross commission generated from the customer account as a percentage of the average account balance.

C. The accounts net asset value based on the market value of the customers portfolio divided by the number of shares outstanding.

D. The accounts fair value to determine if the commission's are high or low compared to the underlying index.

Back 5

The amount of monthly gross conditions generated from the customer account as a percentage of the average account balance

Front 6

Which of the following is the most accurate definition of insider trading?

A. Using publicly available information to manage investment portfolios.

B. Systemically trading accounts against each other.

C. Trading in Securities based on material, non-public information.

D. Issuing Equity illegally through Capital markets.

Back 6

Trading in Securities based on material, non-public information.

Front 7

Under US federal law, which of the following can be considered a security subject to registration and regulation regarding Trading?

A. An investment contract

B. A notarized contract

C. Anything of material value or usefulness

D. An instrument that represents ownership interest

Back 7

An investment contract

Front 8

Following the Wall Street crash of 1929, the US Congress passed the _________ to regulate subsequent trading of Securities through Brokers and exchanges.

Back 8

Securities Exchange Act of 1934

Front 9

To determine if a misrepresentation in the offer or sale of any Securities is material, a fraud examiner should consider which of the following?

A. Whether the person who made the representation intended to mislead potential investors.

B. Whether the person who made the representation had authorization to make the statements.

C. Whether a reasonable investor would wish to know the information to make an informed decision.

D. Whether the person who made the representation believe that it was suitable for potential investors.

Back 9

Whether a reasonable investor would wish to know the information to make an informed decision.

Front 10

A _____ is an agreement between buyers and sellers to make delivery (i.e., sell) or to take delivery of (i.e., buy) a given quantity and quality of a commodity at a specified price and on a specified future date.

A. Futures Contract (future)

B. Certificate of deposit (CD)

C. Option contract

D. Warrant

Back 10

Futures Contract (future)

Front 11

In the United States, the Commodities Futures Trading commission regulates the activities of Futures commission merchants and all their Associated persons.

Back 11

True

Front 12

The primary function of rule 10b-5, which the US Securities and Exchange Commission promulgated pursuant to section 10 of the Securities Exchange Act of 1934, is to regulate filing of annual reports by companies that engage primarily in investing, reinvesting, and trading and securities.

Back 12

False

Front 13

In the United States, rule 10B-5 makes it a crime to act negligently when engaging in transactions involving the purchase or sale of securities.

Back 13

False

Front 14

The US Securities Act of 1933 regulates the trading of Securities through Brokers and exchanges, whereas the US Securities Act of 1934 mainly regulates the issuance of securities.

Back 14

False

Front 15

If a broker who is subject to rules prohibiting Securities broker-dealers from making unsuitable recommendations on investments or investment strategies recommends that his client make an investment that is inconsistent with his clients objectives, this recommendation would be considered a violation of the rules prohibiting unsuitable recommendations.

Back 15

True

Front 16

In the United States, the Securities industry is only regulated at the federal level.

Back 16

False

Front 17

If a broker who is subject to rules prohibiting Securities broker dealers for making unsuitable recommendations on investments or investment strategies recommends an investment to a client without ascertaining relevant personal and financial information about the client, the broker has violated the rules prohibiting unsuitable recommendations.

Back 17

True

Front 18

In the United States, rule 10b-5 makes it a crime to fail to State a material fact when selling securities if the Omission would be misleading to a potential buyer.

Back 18

True

Front 19

Which of the following Investments are commonly recognized as securities?

A. Retirement plans

B. Bonds

C. Fixed insurance policies

D. All of these answers are correct

Back 19

Bonds

Front 20

Steven, an investment professional, who is responsible for managing the brokerage account with his client Joe Fisher. Joe had a little investment experience across its even to control his account. Over an eight month., Steven executed more than 100 trades ancho's we have for the purpose of increasing his own commissions. Steven executed trades without regard for Jose investment goals. The Securities fraud scheme is best known as:

A. Insider trading

B. Churning

C. Running

D. Selling away

Back 20

Churning

Front 21

Which of the following statements about self-regulatory organizations in the US Securities industry is true?

A.SROs oversee the markets they operate in police the members participating in those markets.

B. The financial industry regulatory Authority (FINRA) is an SRO with delegated regulatory Authority from the Securities and Exchange Commission.

C. Sros in force and create the standards and rules under which their members operate.

D. All of these answers are correct.

Back 21

All of these answers are correct

Front 22

All of the following would violate rules prohibiting Securities broker dealers from making unsuitable recommendations on investments or investment strategies except:

A. A broker recommends an investment without ascertaining relevant financial information about the client.

B. A broker makes an investment that is inconsistent with a client's objectives.

C. A broker recommends an investment strategy that is unsuitable for the client.

D. A broker makes an investment without obtaining prior approval from making the transactions.

Back 22

A broker makes an investment without tainting prior approval from making the transactions

Front 23

Illegal pyramid schemes and Ponzi schemes can qualify as investment contracts under certain conditions.

Back 23

True

Front 24

An investment contract, or security, has four components. Which of the following is one of those components.

A. There is an investment of money or other asset.

B. The investment was made with expectations of making a profit.

C. The investment is in a common Enterprise.

D. All of these answers are correct.

Back 24

All of these answers are correct

Front 25

Which of the following is an example of insider trading?

A. Rodger purchases shares of his company stock after he learns that his company is about to announce a new joint venture with a very successful and well-known multi-national corporation.

B. Albert buys shares of a company after the company's CEO tells him about earnings growth a day before making News public.

C. Smith sell shares of his company stock because he knows that the company is about to announce poor earnings.

D. All of these answers are correct.

Back 25

All of these answers are correct

Front 26

For a financial instrument to be classified as an investment contract, and therefore, a security, under the US Howey test, the instrument must be purchased by investors who display management activity in the instruments Enterprise and have expectations of making profits that are to be derived from their own efforts.

Back 26

False

Front 27

For a misstatement or Omission to be actionable under rule 10 b-5, which was promulgated under Section 10B of the US Securities Exchange Act of 1934, the misstatement or Omission generally must be:

A. Material

B. Relied on by the victim

C. Made with an intent to defraud

D. All of these answers are correct

Back 27

All of these answers are correct

Front 28

Which of the following is the most accurate statement regarding the main function of rule 10 b - 5, which the US Securities and Exchange Commission promulgated pursuant to section 10 of the Securities Exchange Act of 1934?

Back 28

The main function of rule 10 b - 5 is to prohibit false statements and other fraudulent activity in connection with the purchase or sale of any security

Front 29

In the United States, the Securities trading commission is responsible for overseeing all self regulatory organizations in the Securities industry and shares regulatory responsibility with them.

Back 29

False

Front 30

Following the Wall Street crash of 1929, the US Congress passed the _____ to regulate the public offering of Securities and to protect investors.

Back 30

Securities Act of 1933

Front 31

To determine if an investment contract is a security subject registration in the United States, a court might apply the _____ test.

Back 31

Howey

Front 32

Which of the following is prohibited with regard to the purchase or sale of Securities under rule 10 b - 5 established by the US Securities and Exchange Commission?

A. Employing any device scheme to defraud.

B. Making any untrue statement of material fact.

C. Engaging in any act, practice, or course of business that would operate as a fraud against any person.

D. All of these answers are correct

Back 32

All of these answers are correct

Front 33

To determine if a misrepresentation in the offer or sale of any Securities is _____, the fraud examiner should answer the following question: " what a reasonable investor wish to know this information to make an informed decision?"

Back 33

Material

Front 34

In limited Partnerships, the limited partners manage the Enterprise's activities.

Back 34

False

Front 35

The financial industry regulatory Authority (FINRA) and the National Futures Association (NFA) are examples of self-regulatory organizations in the United States.

Back 35

True

Front 36

_____ refers to the inappropriate practice of an investment professional who engages in the excessive trading of a customer account to generate commissions while disregarding the customer's interests?

Back 36

Turning

Front 37

If an investment offering Falls within the definition of a security under the Securities Act of 1933, it must be registered with the SEC. There are no exemptions or exceptions.

Back 37

False

Front 38

Unlike general partnership interests, interests in limited Partnerships can be considered investment contracts.

Back 38

True

Front 39

A financial advisor has been ordered by a client to sell a large amount of a particular stock in which the adviser owns shares. Knowing the order will certainly caused the stock price to fall, the adviser sells his shares of the stock for he places the customer's order. This practice is called...

Back 39

Front-running