Finra Series-63 Exam Questions Instant Access

Question 1

Ms. Naivet gave Mr. Smooth, owner of Smooth Construction, $40,000 in return for a promissory note that promised to pay interest at the rate of 8% a quarter, with a repayment of principal at the end of two years. The money would be used by Mr. Smooth to rehab a few beach condo units that had been severely hurricane-damaged and that Mr. Smooth had been able to purchase for ''pennies on the dollar,'' or so he said. The first units would be completed within a month, and the rents would be used to make the interest payments. The investment was almost as risk-free as U.S. government bonds, Mr. Smooth claimed. By the end of the second year, Ms. Naivet had received a lot of fast talk and only one of the promised interest payments.

Have there been any violation of securities laws in this instance?

ANo. This was simply a loan transacted between two parties.

BYes. Mr. Smooth was required to register the promissory note before he offered it for sale.

CYes. Ms. Naivet has been defrauded by Mr. Smooth.

DBoth B and C are true statements.

Answer : D

Yes, there have been violations of securities laws in this instance; the promissory note required registration, and Ms. Naivet has been defrauded. Promissory notes are considered to be securities as defined by the Uniform Securities Act and, as such, must be registered with the state before they can be offered for sale. Furthermore, a promissory note is a promise to repay, and Mr. Smooth has defaulted on this promise after telling Ms. Naivet that the investment was close to being risk-free. In essence, he took Ms. Naivet's money under false pretenses when he sold her the note, and that is the definition of fraud.

Question 2

Assuming there is not a stop order or a proceeding pending, under the registration by coordination process a security's registration with the state becomes effective:

Aonly when it is approved by the state Administrator, regardless of whether it has been approved by the SEC.

Bimmediately after approval by the SEC as long as the registration statement has been on file for at least 20 days or the Uniform Securities Act has provided an exemption to this waiting period.

Cimmediately subsequent to approval by the SEC, regardless of how long the registration statement has been on file.

Donly when it is approved by the state Administrator, who will review the registration documentation upon notification that SEC approval has been granted.

Answer : B

Under the registration by coordination process, the security's registration with the state becomes effective immediately after approval by the SEC as long as the registration has been on file for at least 20 days or the Uniform Securities Act has provided an exemption to this waiting period. This assumes, of course, that there is not a stop order or a proceeding pending.

Question 3

Which of the following conditions is necessary for an act involving securities fraud to be considered criminal and subject to criminal penalties?

AThe act extended across state lines.

BThe perpetrator willfully committed the fraudulent act.

CThe victim(s) lost a combined total of at least $25,000 because of the act.

DThe Administrator decides to send the case to criminal court.

Answer : B

In order for an act of fraud to be considered criminal, the perpetrator must have willfully committed the fraudulent act. In this case, the Administrator will probably ask the court to impose criminal penalties, but an Administrator can't cause an act of fraud to be criminal by sending it to the criminal court system. If an agent misleads a customer regarding the returns to be expected on an investment but hasn't deliberately done so, it is still fraud, but not criminal fraud, regardless of how much the victims lost.

Question 4

Which of the following describes an investment adviser that is not required to register with the state Administrator?

AMoeMoney Investment Advisers, LLC has an office in the state with a client base of fifty individuals.

BFinancial Freedom Investment Advisers has no offices in the state although it does advise six wealthy individuals who are residents of the state.

CCanDo Broker-Dealers is a state-registered broker-dealer. It has begun to offer asset management services to a few of its wealthier clients for a small management fee equal to 0.1% of the assets under management.

DBuckeye Investment Advisers has no offices in the state, but it provides portfolio management services to an insurance company located in the state.

Answer : D

Buckeye Investment Advisers is not required to register with the state Administrator since it has no offices in the state and provides portfolio management services to an institutional investor within the state. Both MoeMoney and Financial Freedom must register since they advise more than 5 individual clients. It doesn't matter in that case whether they have offices within the state or not. CanDo is registered only as a broker-dealer, but it has begun offering investment advice for a fee, so it must also register with the state as an investment adviser.

Question 5

Under the Uniform Securities Act, which of the following does not need to be included when filing to register a security issue with the state?

Aa copy of the firm's articles of incorporation and bylaws, or the equivalent

Bcopies of the underwriter agreements

Ca copy of any indenture applying to the security being registered

DAll of the above documents must be included when filing to register a security with the state.

Answer : D

The Uniform Securities Act specifies that the initial registration statement should be accompanied by all of the documents listed in the first three selections-a copy of the firm's articles of incorporation and bylaws or their equivalent; copies of any underwriter agreements; and a copy of any indenture that applies to the security being registered. Moreover, these are only some of the documents that need to be included.

Question 6

n No: 85

Which of the following is not in itself a reason for the Administrator to deny, suspend, or revoke the license of a person?

AThe applicant has never before worked in the securities industry although he has received the requisite training.

BSome of the information supplied on the registration application was found to be false.

CThe person has been convicted of check kiting within the past ten years.

DThe person is a broker-dealer whose agents have repeatedly been accused of churning and burning, according to written client complaints.

Answer : A

An Administrator may not deny, suspend, or revoke the license of a person simply because the applicant has never before worked in the securities industry if that person has received the training necessary. The Uniform Securities Act specifically states that the order cannot be entered ''. . .solely on the basis of lack of experience if the applicant or registrant is qualified by training, knowledge, or both.''

Question 7

Once a broker-dealer has applied for and been granted state registration, the registration remains valid

Auntil December 31st.

Bfor twelve months.

Cfor three years.

Dfor five years.

Answer : A

Once a broker-dealer has been granted state registration, that registration is valid until December 31st of that year. Registration automatically terminates annually on December 31st although an Administrator may elect to revoke or suspend a broker-dealer's registration at any time if the Administrator finds just cause.

Finra Uniform Securities State Law Examination Series-63 Exam Questions