FINRA FINRA Certifications FINRA-SERIES-63 Questions & Answers

• Question 81:

  You have recently discovered that a security you purchased has not been registered with the state, nor is it exempt from registration. You can file a civil claim against the seller as long as you do so within

  A. five years.

  B. three years from discovery or five years from the event, whichever comes first.

  C. two years from discovery or three years from the event, whichever comes first.

  D. one year from discovery.

  Correct Answer: C

  If you discover that a security you purchased has not been registered with the state and was sold unlawfully, you can file a civil claim against the seller as long as you do so within two years from discovery or three years from the event,

  whichever comes first, under the guidelines of the Uniform Securities Act. Therefore, if you know about an unlawful sale for more than two years or if the sale took place more than three years ago, you cannot sue.

  The statute of limitations has expired.

• Question 82:

  While on vacation in Colorado, Massachusetts resident Ms. Jetset meets Mr. Snow, a registered representative with a Colorado broker-dealer, on a ski lift and accepts a dinner engagement with him later that evening, during which he obtains her cell phone number. A week later, while she is lounging around in her Florida beach condo, he calls and interests her in a local software company that is selling its preferred stock to investors and encourages her to buy it. Ms. Jetset tells Mr. Snow she'll think about it and calls him after she returns to her home in Massachusetts to tell him to buy the stock for her and sends him a check via express mail. Later, Ms. Jetset learns that the preferred stock certificate that she received is-and always was-a worthless piece of paper, and that, in fact, no such company ever existed. Which state Administrator has jurisdiction in this instance?

  I. the Administrator of the state of Colorado

  II. the Administrator of the state of Florida

  III.

  the Administrator of the state of Massachusetts

  A.

  I only

  B.

  I and II only

  C.

  I and III only

  D.

  I, II, and III

  Correct Answer: D

  All three state administrators have jurisdiction since Mr. Snow made the offer to sell from Colorado, to a person who was in Florida at the time, and Ms. Snow accepted the offer and received the certificate in her home state of Massachusetts. According to NASAA, an Administrator has jurisdiction over all offers and all acceptances of offers to purchase or sell securities if they "originate from, are directed to, or are accepted in a state.

• Question 83:

  In which of the following scenarios would the Administrator of a state not have jurisdiction?

  I. A monthly newspaper published by a resident of the state who is not a registered investment adviser has a column in which the publisher makes specific investment recommendations for clients who write in for advice. About 80% of the circulation of the publication is to out-of-state residents.

  II. An internet blog posted by an out-of-state resident makes investment recommendations.

  III.

  An out-of-state firm solicits buyers for its promissory notes within the state.

  A.

  I only

  B.

  II only

  C.

  I and II only

  D.

  I, II, and III

  Correct Answer: C

  The administrator of a state would not have jurisdiction in the scenarios described in Selections I and II. In Selection I, more than 2/3 of the circulation of the newspaper is outside the state, which excludes it from the jurisdiction of the Administrator. Selection II describes an electronic communication that originates from outside the state, which excludes it. Selection III constitutes an offer to sell securities within the state, and this will always fall under the jurisdiction of the Administrator of the state.

• Question 84:

  Which of the following entities are subject to post-registration provisions?

  I. broker-dealers

  II. agents

  III. investment advisers

  IV.

  investment adviser representatives

  A.

  I and II only

  B.

  I and III only

  C.

  II and IV only

  D.

  All of the entities are subject to post-registration provisions.

  Correct Answer: B

  Only selections I and III are subject to post-registration provisions. Broker-dealers and investment advisers can be required to file advertising materials and financial reports with the Administrator, as specified by the Administrator. They are also required to keep records to the specifications of the Administrator. These records will include items such as client e- mails, client letters of complaint, and advertising brochures and must be kept for three years.

• Question 85:

  Most individual state securities laws today are based on:

  A. the Uniform Securities Act of 1956.

  B. the Uniform Securities Act of 2002.

  C. the National Securities Markets Improvement Act of 1996.

  D. the Gramm-Leach-Bliley Act of 1999.

  Correct Answer: A

  Most individual state securities laws continue to be based on the 1956 Uniform Securities Act. Although the Uniform Securities Act was revised in 1985, 1988, and 2002, none of these revisions have been widely incorporated by the individual states. The National Securities Markets Improvement Act of 1996 dealt mainly with the definition of federal covered securities and more efficient management of mutual funds. The focus of the Gramm-Leach-Bliley Act of 1999 was on financial institutions.

• Question 86:

  An investment adviser

  I. provides investment advice to clients.

  II. sells securities to clients.

  III.

  buys and sells securities in their clients' accounts for the clients.

  A.

  I only.

  B.

  I and II only.

  C.

  I and III only.

  D.

  I, II, and III.

  Correct Answer: C

  An investment adviser provides investment advice to clients and may also buy and sell securities in their clients' accounts for the clients. He does not, however, sell securities to his clients.

• Question 87:

  The Turnover Corporation, a firm with 25,000 employees, has recently hired 50 new employees, many of whom have been hired to replace middle-level managers who have retired. Turnover has omitted this fact from its prospectus. Turnover is guilty of

  A. fraud.

  B. misrepresentation.

  C. misusing insider information.

  D. nothing. The hiring of 50 new employees by a firm with 25,000 employees is not a material fact.

  Correct Answer: D

  Turnover is guilty of nothing when it hires 50 new employees, but doesn't include this information in its prospectus because this is not a material fact. Most of the employees have been hired to replace middle-level managers who have retired, and these employees wouldn't be considered significant enough to affect the price of the stock in any way. If Turnover had hired a new CEO, that would be a material fact that must be disclosed.

• Question 88:

  Ari Gaunt is a registered agent employed by Small andAssociates Broker-Dealers. He has been notified of a hearing regarding the revocation of his license for making unauthorized trades on some of his clients' accounts.

  Which of the following statements is necessarily true?

  A. If Ari is found guilty and has his license revoked, Small and Associates will have its license revoked as well and must reapply for reinstatement by filling out an application and paying the requisite filing fees.

  B. If Ari is found guilty and has his license revoked, Small and Associates will be subject to a fine.

  C. If Ari is found guilty and has his license revoked, he can appeal the decision in a court of law if he files the appeal within sixty days.

  D. The Administrator of the state can assess Ari with both civil and criminal penalties.

  Correct Answer: C

  If Ari is found guilty of making unauthorized trades on his clients' accounts and has his license revoked, he can appeal the decision in a court of law if he files the appeal within sixty days. Small and Associates license is not in danger as long as the firm has been providing competent supervision of Ari and its other agents. It will not be required to pay a fine based on Ari's fraudulent activities. Ari may end up with civil and criminal penalties, but the Administrator cannot assess them. Only a court of law can do that.

• Question 89:

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

  A. Securities Act of 1933

  B. Securities and Exchange Act of 1934

  C. Investment Advisers Act of 1940

  D. Investment Company Act of 1940

  Correct Answer: A

  The Securities Act of 1933 is the Act that requires that all new securities be registered and provides for registration by coordination.

• Question 90:

  Today's edition of the Wall Street Journal carried a front page story regarding a federal lawsuit that has been filed against a software manufacturer for monopolistic practices. The CFO of the company called his broker today and sold some of the shares he owns in the company.

  Which of the following statements are true?

  I. The CFO is guilty of illegal insider trading.

  II. If the agent who effected the transaction for the CFO knew he was CFO of the software company, the agent is guilty of illegal insider trading.

  III.

  The broker-dealer for whom the agent works may have its license suspended or revoked if its agent has knowingly executed this illegal insider trade for not having supervised the agent properly.

  A.

  I only

  B.

  I and II only

  C.

  I, II, and III

  D.

  None of the statements is true.

  Correct Answer: D

  If the CFO called his broker and sold some of the shares he owns today, none of the statements is true. Insider trading is only illegal if the insider trades on information that the public does not yet have. In this case, the information has already been made publicly available, so no one has done anything illegal. Insiders to the company are allowed to buy and sell shares of their firm's stock as long as they are not acting on private information.