Term
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Definition
Under the USA it is unlawful for any person, in the conjunction of with the offer, sale, or purchase of any security (directly or indirectly) to:
1. Employ any device, scheme, or artifice to defraud.
2. Make any untrue statement of material fact, or omit to state any material fact needed to make a statement not misleading.
3. Engage in any act, practice, or course of business that operates or would operate, as fraud or deceit upon any person |
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Definition
| A fact that would be important to a reasonable person in deciding whether to engage in a particular transaction. |
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Definition
| The practice of intermixing securities belonging to customers with those that belong to the broker-dealer. |
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Definition
| The illegal practice of a brokerage firm executing orders on a security for its own account while taking advantage of advance knowledge of pending orders from its customers. |
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Definition
| Engaging in excessive trading in a client account, usually for the purpose of generating commissions. |
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Definition
| A demand to immediately halt an activity or face legal action. |
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Term
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Definition
| If a registered person realizes that he as effected an illegal sale, he may offer to buy back the security, plus interest, minus any income received on the security. If the client does not act within 30 days of receipt, then the client would generally not be permitted to bring action in court. |
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Term
| Fraudulent/Misleading Statement |
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Definition
- Saying it has been "approved" by the SEC or state Administrator
- Saying their registration is a form of certifying or approving their business practices.
- Telling a client that a security is about to be listed w/o knowledge of truth.
- Promising to preform certain services without intending to do so
- Promising free services and then charging hidden fees.
- Using inflated or promissory language.
- Falsely stating anticipated or current earnings.
- Providing false info. or inaccurate market quotations.
- Falsely stating the amount of a commission or markup.
- Overstating or misrepresenting the status of a client's account.
- Spread rumors in order to effect transactions.
- Misrepresenting dividends, or selling a security based on an impending dividend. |
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Term
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Definition
Situations that must be disclosed:
- The adviser/employees are also acting as a broker-dealer/or securities agent.
- The adviser is receiving transaction-based compensation.
- The adviser receives any type of compensation from any source for soliciting or referring clients to another adviser or broker-dealer.
- The adviser receives hidden fees in the form of undisclosed service charges, wrap fees, or expenses reimbursed by other parties.
- The adviser effects agency cross transactions for its advisory clients.
- The adviser uses third-party research. |
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Term
| Unethical Advisory Practices: |
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Definition
- Use of insider information
- Making unsuitable recommendations
- Churning
- Exercising Discretion without Written Authority
- Borrowing from or lending to a client
- Commingling client and firm securities
- Conversion of client cash and securities
- Sharing in the profits or losses in a client's account
-Guarantee the client a profit
- falling to notify a supervisor of a written client complaint
- Manipulating the market
-Selling Away |
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Term
| How the Uniform Securities Act is enforced: |
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Definition
- Issue a cease and desist order
- Suspend, deny, or revoke the registration of a security or person.
- The purchasers of securities that were sold in violation of the Act may sue the sellers.
- The state courts may impose criminal penalties. |
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Definition
| An intentional deception made for personal gain or to damage another individual. |
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Definition
| A practice when agents borrow a client's property for personal use, even for a limited time. |
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Definition
| Takes place when an agent executes securities transactions that are not recorded on the regular books and records of his employer. |
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| Soliciting orders for unregistered, nonexempt securities: |
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Definition
| Is a prohibited sales practice. |
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Definition
| May not call a prospective client before 8 am or after 9 pm. Must state their name of their employer, address or phone number. Must maintain a Do Not Call list. |
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Definition
| The minimum amount of money that clients need to invest in order to receive a discounted sales charge. |
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Term
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Definition
| Allows clients who are planning to invest additional money in a mutual fund over the next 13 months to qualify for a breakpoint. |
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Term
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Definition
| Is an understanding between a broker-dealer and a bank which the broker-dealer conducts business on the premises of a retail bank. Must be governed by written agreements. |
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Term
| The Uniform Prudent Investor Act |
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Definition
| A model law, which gives several criteria for prudent investing, based off of the Modern Portfolio Theory (MPT). |
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Term
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Definition
| One in which the investment adviser directs the transaction to a broker-dealer in exchange for services that are for the general benefit of advisory clients. |
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Term
| Three conditions for Safe Harbors: |
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Definition
1. The adviser must exercise investment discretion over the accounts of others.
2. The broker-dealer must provide the adviser with services that assist the adviser in making investment decisions for the client accounts.
3. The adviser must determine that the value of these services is reasonable in relation to the commissions that the brokerage firm charges. |
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| Three statements Investment Advisory Contracts must include: |
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Definition
1) The investment adviser will not be compensated on the basis of sharing in capital gains/appreciation of the client's fund (performance-based fees).
2) The investment adviser may not assign the contract without the consent of the client.
3) The investment adviser will notify the client of any change in the membership of the partnership within a reasonable time (60 days). |
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Term
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Definition
| An exception to an adviser buying or selling securities without written authorization. For a period of 10 business days after the discretion is granted. |
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Term
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Definition
| An investment adviser that buys or sells securities for its own inventory. |
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Term
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Definition
| Trades executed when an investment adviser acts as a broker for both a client and another person when effecting a securities transaction. |
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Term
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Definition
| Where a person sold securities that were in violation of the Uniform Securities Act may sue the seller of the securities. |
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| What a PURCHASER may recover if sold a security in violation: |
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Definition
| The full purchase price + interest + court costs and reasonable attorney fees - any income received from the security |
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Term
| Fraudulent Investment Advice |
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Definition
| A person who dispenses investment advice for a fee and in doing so, acts in a fraudulent manner, is liable to that advisory client. |
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Term
| A person who receives Fraudulent Investment Advice is able to recover: |
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Definition
| The cost of the advice + any loss on the stock + interest + costs and reasonable attorney fees - any income received from the advice |
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Term
| Time Limits for Civil Liabilities |
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Definition
| No more than 3 years after the occurrence of the violation or rendering of the investment advice, or after two years from discovering the violation - which ever comes first. |
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Term
| Criminal Penalties include: |
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Definition
| The max. penalty for each violation is a $5000 fine, three years in prison, or both; no prison sentence may be imposed if the person is able to prove that he had no prior knowledge of the rule or order violated. |
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Term
| Criminal Penalties Time Limit |
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Definition
| The statute of limitations is 5 years. |
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