Free Series 63 Exam Flashcards

A model state securities law designed to protect investors from fraud while coordinating state securities regulations. Each state can adopt and modify it. The Administrator enforces the USA at the state level.

The state official or agency responsible for enforcing securities laws within that state. Powers include issuing licenses, conducting investigations, issuing cease and desist orders, and denying/revoking/suspending registrations.

Broadly defined to include individuals, corporations, partnerships, associations, joint-stock companies, trusts, governments, and any unincorporated organization. Does NOT include a minor or deceased individual.

Any note, stock, bond, investment contract, or evidence of indebtedness. Includes any profit-sharing agreement, certificate of interest, or investment in a common enterprise with expectation of profit from others' efforts.

Any person engaged in the business of effecting securities transactions for the accounts of others (broker) or for its own account (dealer). Must register in any state where they have a place of business or more than 5 retail clients.

An individual (natural person only) who represents a broker-dealer or issuer in effecting or attempting to effect securities transactions. Agents must register in the state where they work.

Any person who, for compensation, engages in the business of advising others about the value of securities or the advisability of investing in securities. Must register unless exempt.

An individual who represents an investment adviser and makes recommendations, manages accounts, determines recommendations, or supervises those who do. Must register in the state where they have a place of business.

Any location where an agent or IAR regularly provides investment services or solicits clients, including offices, branches, or any location held out to the public as a place for securities services.

A broker-dealer with no place of business in a state does not need to register if they have 5 or fewer retail clients in that state during the preceding 12 months. Institutional clients are not counted.

An investment adviser with no place of business in a state does not need to register if they have 5 or fewer clients who are residents of that state during the preceding 12 months.

A securities registration method for issuers also registering with the SEC. The state registration becomes effective simultaneously with the federal registration. Requires filing copies of federal registration materials.

The most comprehensive and difficult securities registration method. Used when securities are not federally registered. Requires detailed disclosure including 3 years of audited financial statements.

The simplest securities registration method. Available only to established issuers with a history of profitability and dividend payments. Requires minimal disclosure; effective upon filing with the Administrator.

An order issued by the Administrator to suspend or deny the effectiveness of a securities registration. May be issued if the registration statement is incomplete, misleading, or if the issuer has violated securities laws.

A securities registration remains effective for 1 year from its effective date. To continue offering, the issuer must file a new registration before expiration.

Securities that do not need to be registered with the state. Includes: U.S. government securities, municipal bonds, bank securities, credit union securities, and securities listed on national exchanges.

Transactions that do not require securities registration regardless of the type of security. Includes: private placements, transactions with institutions, isolated non-issuer transactions, and fiduciary transactions.

An exemption for offers made to no more than 10 persons (excluding institutions) in 12 months, where the issuer believes all buyers are purchasing for investment. No general advertising or commissions to non-registered persons.

Banks, insurance companies, investment companies, pension funds, and other specified sophisticated investors. Sales to institutions are generally exempt transactions because they can protect themselves.

When federal law overrides or supersedes state law. For securities, federal-covered securities are preempted from state registration requirements, but states retain anti-fraud authority.

Securities exempt from state registration due to federal preemption. Includes: NYSE/NASDAQ-listed securities, investment company securities registered under the Investment Company Act of 1940, and Regulation D Rule 506 offerings.

A transaction where the proceeds do not go to the issuer (secondary market transaction). Generally exempt from registration if isolated and not part of repeated or successive transactions.

Any practice that operates as a fraud or deceit upon a person. Includes material misstatements, omissions of material facts, and any manipulative or deceptive conduct in connection with securities transactions.

Information that a reasonable investor would consider important when making an investment decision. Omitting or misstating material facts constitutes fraud.

Intent to deceive, manipulate, or defraud. Required for criminal fraud charges but NOT required for civil fraud cases under the USA—negligence can be sufficient for civil liability.

An agent selling securities not approved by their broker-dealer, typically for personal compensation. This is a prohibited practice that violates the USA and FINRA rules.

Excessive trading in a customer's account to generate commissions without regard to the customer's investment objectives. A prohibited practice that constitutes fraud.

Mixing client funds or securities with the firm's or agent's personal assets. Prohibited because it creates risk of misappropriation and makes it difficult to identify client property.

An agent participating in gains or losses in a customer's account. Prohibited unless: (1) the customer provides written authorization, (2) the broker-dealer approves, and (3) sharing is proportionate to the agent's contribution.

The legal obligation to act in the best interest of another party. Investment advisers owe fiduciary duties to clients including duties of loyalty, care, and full disclosure of conflicts of interest.

A fiduciary obligation requiring advisers to put clients' interests ahead of their own. Advisers must avoid or fully disclose conflicts of interest and cannot benefit at the client's expense.

A fiduciary obligation requiring advisers to provide advice based on a thorough understanding of the client's situation, make reasonable inquiries, and have a reasonable basis for recommendations.

Investment advisers must deliver their brochure (Form ADV Part 2A) to clients at least 48 hours before entering an advisory contract OR at the time of contract with 5-day right to cancel. Annual offer to deliver required.

Holding client funds or securities, or having authority to obtain possession of them. Advisers with custody must follow strict requirements including annual surprise audits and qualified custodians.

The power to make investment decisions on behalf of a client without obtaining prior approval for each transaction. Requires written client authorization. Each order must be promptly reviewed by a principal.

An administrative order issued by the Administrator directing a person to stop violating securities laws. Can be issued summarily (without prior hearing) if the public interest requires it.

Actions the Administrator can take against registrations. Prior notice and hearing required EXCEPT for summary actions. Grounds include: fraud, insolvency, violations, or acting as if not registered.

A registrant's voluntary termination of registration. Becomes effective 30 days after filing unless a proceeding is pending. The Administrator can institute proceedings within 1 year of withdrawal.

The Administrator's authority to compel witnesses to testify and produce documents in investigations. Can be used for investigations occurring within or outside the state if related to state securities matters.

Broker-dealers and investment advisers must maintain required records. The Administrator may require specific records to be kept and can conduct inspections during reasonable hours.

Willful violations of the USA are criminal offenses. Penalties: up to 3 years imprisonment and/or up to $5,000 fine per violation. Statute of limitations: 5 years from the violation.

A person who sells or offers to sell securities in violation of the USA is liable to the buyer. The buyer can recover the purchase price plus interest minus any income received, or damages if still holding.

Actions for rescission must be brought within 3 years after the sale (or 3 years after discovery of the violation, if later) but in no event more than 2 years after discovery.

An offer to buy back securities at the original purchase price plus interest. If properly made by the seller, it eliminates buyer's right to sue. Buyer has 30 days to accept or reject the offer.

Any attempt to dispose of a security for value, including advertisements, sales literature, and any solicitation. Broadly interpreted to include any activity designed to interest someone in purchasing.

Every contract of sale, disposition of, or attempt to dispose of a security for value. Also includes a security given as a bonus if the sale is conditioned on the transaction of any business.

Any person who issues or proposes to issue a security. For investment company shares, the fund itself is the issuer. The person who organizes or sponsors the fund is not the issuer.

A security where a third party guarantees the payment of principal or interest. The USA definition of security includes securities guaranteed by third parties.

Minimum financial requirements that broker-dealers must maintain. The Administrator may establish net capital requirements for broker-dealers registered in the state. Ensures firms can meet obligations.