Philip''s father was chairman at HighSpeed industries and just retired six months ago. His father led the company to huge profits with hundreds of satisfied shareholders. Philip is a broker-dealer who takes a tremendous amount of pride in the fact that his clients love the stock that his father built. Does Philip''s sale of the stock represent a conflict of interest?
Answer(s): D
In fairness, it is Philip's fiduciary responsibility to disclose his relationship to the former chairman and avoid the appearance of being partial to HighSpeed because of family loyalty
Phoebe Whitmyer, an elderly widow of considerable wealth, has given her financial advisor, Hal Spats, discretionary authority to trade her account. Prior to granting this authority, Phoebe reminded Hal that her personal investment policy is based on prudent investor standards. Since Hal knows that Phoebe''s heirs are really counting on a windfall, Hal frequently trades in small company stock on Phoebe''s behalf and has added a small fortune to Phoebe''s wealth. Has Hal made suitable investment decisions for Phoebe?
Answer(s): A
Hal has violated his client's instructions by trading a riskier investment in an attempt to build the account's assets. The Prudent Person Rule is a standard for investment decisions that preserve capital and build a reasonable income. Hal's decision to build the account was not his to make, nor was it suitable for Phoebe's goals. Even though Phoebe has granted Hal discretionary authority, he must still make suitable choices regarding her account
Name the federal act that released mutual funds companies from responsibility for registering at the state level.
Answer(s): B
In order to prevent duplication between state and federal laws, Congress enacted the National Securities Markets Improvement Act in 1996. As a result of this legislation, state registration is not necessary for open and closed-end investment companies (mutual funds, unit investment trusts, face amount certificates), private placements, municipalities (except those issued from that particular state), and securities directly exchanged without commissions paid. While these entities are not regulated at the state level, the states are still permitted to require notice filings and the payment of filing fees for some federally covered securities that are offered in that state
Inter-Galaxy Investors Inc is a large broker-dealer headquartered in North Dakota. The company conducts brokerage transactions for individual investors and receives commissions from its broker transactions. As a part of its client service, the company's research department provides reports and advice regarding the purchase and sale of securities. Is Inter-Galaxy considered an investment advisor?
Inter-Galaxy would appear to be an investment advisor because the company provides advice, is in the business of providing that advice and receives compensation for the advice (the ABC rule). However, broker-dealers are exempt from registering as investment advisors if they if they do not charge a specific fee for the advice they dispense. Inter- Galaxy, like most broker-dealers, receives a commission on the securities trades transacted; the company is not charging for research or investment recommendations
Garth and Rick have pooled their resources and purchased 5,000 shares of their favorite TV network''s stock. Rick logs on to the internet and visits his favorite investors chat room where he posts a suggestion that the network is about to sign a major star for its hottest prime-time show. Rick hasn''t actually heard this information but thinks it may stimulate the price of the stock. Is Rick''s activity considered fraudulent?
Under the Uniform Securities Act, it is considered fraudulent to attempt to manipulate the price of a stock by spreading rumors. This applies to both individuals and professionals and has federal implications as well
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