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1.

Key regulations
a. Uniform Securities Act USA
i. Model law guides each state in drafting their own laws
ii. Purpose to prevent fraud
b. Investment Advisers Act of 1940
i. Federal code, governing the Firm (Wells Advisors
2. Who enforces state laws
a. The Administrator
i. Does not write laws (legislature does this)
ii. Appointed by Governor
3. What is state
a. 50 states, Territories, Possessions, DC and Puerto Rico
4. What is a person
a. Individual, corporation, partnership, joint stock in a company, government, association, unincorporated
organization, municipalizes, trusts
b. NOT A PERSON
i. Minor (custodian)
ii. Deceased person (executor of estate)
iii. Person declared legally incompetent (guardian)
c. Additional terms
i. Exclusion entity not regulated under the law
ii. Exemption entity not required to register, but subject to the law
iii. Jurisdiction legal authority to act
BD regulation
1. What is a B/D = person that effects transactions for either 1. Own account, or 2. Others
a. Acting as broker AGENT
i. Charges commission
b. Acting as dealer PRINCIPLE
i. Charges spread
c. Cannot charge both
2. Who is a B/D
a. Registration requirements must register if
i. Location have an office in the state
ii. Clientele have at least 1 resident retail client in the state
3. What is NOT a B/D
a. Issuer
b. Commercial banks
c. Out of State B/Ds (doesnt matter if you have non-retail clients there)
d. Agents
e. Individuals with personal trading account
4. Exemption for Canadian B/Ds
a. Canadian B/D are exempt if:
i. It is registered under Canadian law
ii. Has NO OFFICE in the state
iii. Submits a limited registration to the state
b. CAD B/D can then do business with:
i. Canadians in the state (on vacation)
ii. State residents, but only in their Canadian Retirement Plans
5. Agent of B/D
a. Agent natural person who represents a B/D in effecting security trade
b. Who is NOT an agent
i. Clerks, admins, ministerial
ii. UNLESS they accept orders
6. Agent Registration Requirements
a. Must register in any state where an offer
i. Originates (NY to NJ)
ii. Is directed
b. Agents may only register in states where their B/D is registered
7. Registration of an Agent?
a. Effectiveness of Registration When Granted
b. Expiration of Registration Every Dec 31
st

c. Leaving a firm agent, old firm, and new firm must all notify administrator
8. Agent of an Issuer
a. Exempt from registration, if the agent
i. Sells exempt securities
ii. Sells an exempt transaction ( private offering)
iii. Sells to only:
1. Fellow employees of the issuer without commission
b. Exemption does not apply to agents of B/D
i. If working for B/D, you MUST be registered
9. What is an offer?
a. Every attempt to dispose
b. Every solicitation of an offer to purchase
10. What is NOT an offer
a. M&A
b. Business reorg
c. Sale
d. Advertisements
i. Radio television ads originating outside the state
ii. Newspaper ad originating outside the state
iii. Newspaper of general circulation (2/3 circ outside the state of publication)
1. Ad is NOT an offer in ANY state
11. What is a Sale?
a. Conveying (transferring) ownership for value
b. Every disposition
c. Securities given as a bonus with purchase
d. Exercise of a right or warrant
e. Converting a convert
f. Purported gifts of assessable stock
i. Assessable stock: issuer can demand (assess) additional capital from the shareholder
12. What is NOT a sale
a. Pledge or loan of securities
b. Compensation bonus of common stock
c. Stock dividends
d. Merger transactions
e. Transactions part of a plan of reorg
What is a security?
1. Under USA, securities are:
a. Any stock, transferrable share
b. Preorganization certificate
c. Voting trust certificate
d. Certificate of partnership in a profit sharing arrangement
e. Any note, bond, or debenture
f. Collateral trust certificate
g. Investment contract (e.g. futures contract, except futures)
h. Certificates of interest in Oil, Gas, Mining Titles or Leases
i. Warrants or rights
j. Securities futures
k. Variable annuities, life insurance
l. Options on securities, foreign currency, commodities (any kind of option is a security)
m. Multilevel distributorship
n. Whiskey warehouse receipts
o. Equity, US Gov & agency, Munis
2. What is NOT a security
a. Fixed annuities and life insurance
b. IRAs and Keogh plans
c. Commodities (including futures)
d. Antiques and collectibles
e. Precious metals (including futures)
f. Real estate (personal)
g. Currency (including futures)
3. Federal covered securities - types
a. Nationally traded securities
b. All securities equal to or senior to the nationally traded securities
i. Rights and warrants
ii. Debt and fixed income
c. US Treasuries
d. Munis
e. Investment companies
f. Federal private placement
4. Federal covered securities benefits
a. Exempt from state registration
i. Provide Notice of Filing for Investment Company securities only
b. NOT Federal covered
i. OTC BB and OTC Pink
State Registration
1. Registration for new issues
a. Requirements
i. Amount of security to be issued
ii. Other states the securities will be offered in
iii. Any adverse order concerning the offer
iv. Consent to Service of Process
b. Effectiveness
i. Registration is effective for 1 calendar year
2. Registration by Coordination interstate
a. Available to Any issuer that registers with the SEC
b. Procedure issuer forwards 3 copies of the SEC registration statement to the State Administrator
c. Effectiveness simultaneous with SEC registration
3. Registration by Qualification intRAstate
a. Available to any issuer with business footprint
b. Procedure issuer submits registration to State Administrator
c. Effectiveness when granted by state administrator
4. State registration of new issues
a. Who can register?
i. Anyone on behalf of the issuer (but not investor)
b. Prospectus delivery requirement
i. Submit with written confirmation
c. Suspension or revocation of registration
i. _____
d. Unlawful representation
i. Dont embellish the registration, making good endorsements
Exempt securities
1. Exempt from State Registration
a. US gov securities
b. Munis
c. Issued by national or state banks
d. Credit unions
2. Exempt securities
a. Commercial paper
b. Bankers acceptance
c. Farmers cooperation association
d. Issued by insurance companies
e. Issued by railroads
f. Issued by public utilities
g. Issued by non-profits
h. Issued by foreign governments
i. National foreign governments (Germany, not berlin)
ii. Canada and its municipalities
i. Employee benefit plans
j. Federal covered securities (nationally traded, US treasurues, Munis, Investment Co securities (Mutual
Funds)
i. No state registration, but must file Notice of ____
Transaction exempt from registration
1. Exempt
a. Non-issuer transactions
i. Where issuer does not receive the proceeds
b. Unsolicited orders
i. Transaction is initiated by the client
c. Fiduciary transactions
i. Executor of estate
ii. Trustee in bankruptcy
iii. Sherriff/Marshall
1. Exception: Trades by Executors
d. State private placement
i. Limited offering transactions
ii. Offers to 10 or less retail clients in 12 month period
e. Institutional sales
2. Denial / Revocation of state registration exemptions
a. Revocable exempt securities
i. Non-profit securities
ii. Employee benefit plan securities
b. Revocable exempt transaction
i. ALL exempt transactions ARE revocable
ii. EXCEPT transactions in Federal covered securities (cant overturn exemption)
Fraud in Securities Transactions
1. Fraud and Prohibited activities
a. Definition any manipulative or deceptive act
b. Who anyone in the securities industry
c. What the intent to manipulate or deceive in connection with security purchase/sale
2. Fraud in securities transactions
a. Market manipulation
i. Wash sales or Painting the Tape trying to make volume look artificially higher
ii. Pegging or fixing Telling people the glass is half full
1. Maintain a security at a particular price with the intent to manipulate
b. Parking securities removal of a liability from the balance sheet for better Financials
c. Omission of a material fact
i. Material anything investor would consider important
d. Implying/Stating approval of securities by the Administrator
Investment Advisers
1. Definition of IA
a. Provides securities related Advice
b. During the course of normal Business not a specific # of hours
c. For Compensation biz card, website,
2. Who is an IA
a. Registration requirement
i. Location if have any office in the state, must register in the state
ii. Clientele if has 6 or more retail resident clients in the state, must register
1. Can have unlimited institutional, and ok to have 5 or less individual
3. NOT an IA
a. B/D paid on their trades, not on their advice
b. Exception:
i. Wrap fee accounts (managed accounts) charge a single fee for:
1. Brokerage and investment advice
2. You are an IA
c. NOT IA (excluded) - L.A.T.E
i. Lawyers, Accountants, Teachers, Engineers
ii. Dont cont for exclusion (economist, geologist, banks, or anyone holding themselves out for
investment advice e.g. tax planners)
d. Not IA
i. Commercial banks, Thrifts, trust companies
ii. Advisers of family office (advises 1 wealthy family like Clintons)
iii. Publishers of bona fide financial publications
4. IA Reps
a. Individuals are IAR if:
i. Provide advice
ii. Solicit new clients
iii. Supervise IARs (need 65 or 66)
b. Firm is an IA
5. IAR registration
a. Expiration 12/31, unless renewed
b. IAR
i. Leaving a federal covered advisor IAR notifies
ii. Leaving a state registered IA IA firm notifies
6. Registration of IAs
a. >110mm, Fed registration required - federal covered advisor
b. < 90mm, state registration required
c. Federal covered advisors also
i. Advisers to registered investment companies
ii. Required to register in 15 or more states
7. How to register as a Federal Covered Advisor
a. File Form ADV with SEC and pay fee
b. Registration does not expire effective until withdrawn, cancelled, or revoked by SEC
8. Exemption from Federal Registration Reqruiement
a. Certain IAs DO NOT need to register
i. First IA must qualify to register with the SEC
ii. Second IA must:
1. Give no advice on exchange-listed securities
2. All clients must be in 1 state
3. All clients are insurance companies
4. Foreign private advisers (can have max 15 U.S. clients)
5. Venture capital advisors
9. IA State registration
a. File Form ADV and pay fee
b. File Consent to Service of Process
i. Grants the Administrator legal authority to accept non-criminal securities-related documents on
behalf of the applicant
10. Form ADV Part 1
a. IA name
b. # employees
c. Form of organization
d. Nature & method of business
e. Where registered
f. Regulatory sanctions
g. Each partner/director performing investment functions:
i. Name, address, education, and business affiliations
ii. For past 10 years
h. Whether IA will:
i. Maintain custody
ii. Exercise discretion
11. Form ADV Part 2
a. Compensation structure
b. Types of clients
c. Types of investment
d. Strategies employed
e. Education and business background of those rendering advice
f. Any affiliations with other securities professionals (B/Ds, investment cos)
12. Other ADV forms
a. Amended Form ADV
i. Anytime information becomes inaccurate..
1. Notify administrator promptly
2. Name, location, fees change
b. Form ADV-W
i. Used when exiting the business
13. Addtl IA reg requirements
a. Administrator might require financial stuff from IA
b. Post a bond of.
i. If IA has custody - $35K
ii. If IA has discretion - $10K
c. Examination audit requirements
14. Effectiveness of registration
a. State 12pm on the 30
th
day after application is filed, regardless of 63 exam
b. Federal within 45 days after the application is filed
15. State actions
a. Denial of registration application
b. Once registered
i. Censured, suspension, revoked permanently, restricted or limited
16. Disciplinary action
a. To deny, revoke, or suspend, Administrator must have 2 reasons
i. #1 publics best interest
ii. #2 misstatements, violates USA, deceptive, failure to enforce supervisory controls, lack of
qualifications,
17. Denial / Revocation of registration
a. Required procedures
i. Notice must be given
ii. Hearing must be held (if requested)
1. Within 15 days of request
2. Writing findings must be provided
iii. Appeal can be taken within 60 days of the order issuance
18. Cancellation of state registrations
a. No longer in the business
b. No longer in existence
c. Court finds the person to be legally incompetent
19. Withdrawal of state registration
a. Takes effect 30 days after filing with Admin, unless disciplinary proceedings are in proc.
b. Administrator retains jurisdiction for 1 year after withdrawal
20. Requirements IA contracts for Fed and State Advisers
a. Must be in writing
b. Compensation
c. No assignment without client consent
d. For IAs organized as partnership
i. Minority interest requires notification
ii. Majority interest requires an assignment & written client consent
e. PROHIBITED in IA contracts
i. Exculpatory clauses (null & void)
1. Stipulations waiving advisers compliance with eh law are void
f. Performance fee for Qualified Clients only
i. AUM - > $750K in the clients account
ii. Client net worth - > $1.5M
iii. State limitations (at least $1M AUM, or $2M individual)
21. Brochure Rule B/Ds only (advisers have fiduciary requirement instead)
a. Disclosure statement
i. Fee structure
ii. All investment strategies & techniques
iii. All Investment asset categories used
iv. Detailed info about who you are
b. Initial delivery requirements
i. At least 48 hours before contract is signed, or
ii. At the same time contract is signed if you give 5 day cancellation w/o penalty
c. If material changes, new brochure must be:
i. State IAs offered
ii. Federal covered IAs delivered
d. IAs must include a balance sheet if the IA
i. Collects pre-payment of advisory fees
1. State level at least $500; at least 6 months in advance
2. Fed level at least $1,200; at least 6 months in advance
e. Exceptions
i. Investment company clients (e.g. mutual fund client)
ii. Clients for impersonal advisory services
1. Advice that does not meet the objectives or needs of specific individual accounts
(statistical information)
and
2. Client is charged less than $500
22. Custody of client funds and securities
a. What is custody
i. Holding or possessing, directly or indirectly client funds
ii. Having authority (power of attorney) to obtain possession of client funds
b. What is NOT custody
i. Discretionary authority
ii. Pre-payment of fees
iii. Receipt of customer checks, provided:
1. Check is forwarded/returned within 3 business days
23. Requirements for custody
a. An IA must give prompt notice to the Administrator when it has or may have custody, and.
i. Securities segregated and identified with qualified custodian
ii. Each client has a separate account
iii. Clients are notified of the location
iv. Quarterly reports send to the clients
v. Surprise annual audits by CPAs
24. Disclosures for IAs
a. Agency Cross Transaction
i. Requires written client approval (blanket authorization is OK)
ii. At least one side of the transaction must be unsolicited
b. Principal transactions (IA acts as principal)
i. IA must disclose capacity, and:
ii. Requires written client approval before each trade
25. Financial & disciplinary disclosures
a. Financial impairment must be disclosed
If IA has And Net worth less than:
Custody of securities or funds: $35K
Investment discretion $10K
Require prepayments of more than
$500 in fees, more than 6 mos in adv.
Negative net worth
b. Disclose to all clients anything that would reasonably affect clients ability to judge IA
i. Disciplinary action within last 10 years
ii. Violations of any investment statue
iii. If IA has limitations placed on business activity
Business practices
1. Ethics for IAs
a. Fiduciary responsibility act within clients best interest
b. Prudent Investor Rule have reasonable foundation for inv. Advice
c. Avoid conflicts of interest disclose
i. Ownership of recommended securities
ii. Commission for recommended securities
2. Ethics for B/Ds
a. Suitability
i. All recs must be suitable
ii. B/Ds do not owe their clients a fiduciary duty
b. Trading authority
c. Third- Party trading authority
3. Other
a. Discretionary trading authority Agent/IAR selects:
i. Security, Quantity, Action (buy/sell)
b. Churning excessive trading to generate commission, (reverse churning for AUM %)
c. Misrepresents
d. Loans to clients
i. Agents only if client is lending institution
ii. IAs only if client is lending institution
e. Reports to others permitted with disclosure
f. Front running putting firm before the client
g. Trading in a margin account
i. Permissible to execute a trade prior to obtaining signed margin agreement
1. Provided they are received promptly after 1
st
trade
h. Unreasonable fees market based
i. Conflicts of interest all about discretionary
j. Confidentially of Client info disclosure with
i. Client consent
ii. Required by law
4. Sharing customer accounts
a. Agents may share accounts with:
i. Written permission from:
1. Client
2. Firm
b. IAs and IARs
i. May NEVER share customer accounts
5. Sharing Commissions
a. Permissible under certain circumstances
i. Agents and IARs may share with registered agents/IAs at same/affiliated firm
ii. Does not require disclosure, unless:
1. It increases the transaction costs to the client
6. Record keeping requirements
a. IAs
i. 5 years, 2 years in office
b. BDs
i. 3 years, 2 years in office
ii. Cust complains 4 years, written
7. Mutual fund sales loads
a. No Load aka no sales charge:
i. No front-end load
ii. No contingent deferred sales charge CDSC, no back end load
iii. 12b-1 fees less than 25bps of avg annual net assets
8. Soft Dollars
a. Advisor receives research services in exchange for directing business
i. Permitted
1. Research reports and analyst access
2. Portfolio analysis software
3. Attendance fees for industry seminars
ii. Prohibited
1. Office space/ computers
2. Advertising
3. Travel reimbursement
9. Trusts and trustees
a. Trustees owe fiduciary duty to Trust Beneficiary
b. Trustee must
i. Minimize and manage risk by diversifying the trust
ii. Manage all assets prudently considering the trusts
1. Purpose
2. Terms
3. Goals
Powers of the Administrator
1. Powers
a. Admin has jurisdiction if:
i. If an offer originates in the state
ii. If an offer is directed in the state
iii. If a transaction settles in the state
iv. A securities professional is:
1. Registered in the state
a. Just doing business is not enough
b. Powers without needing a judge
i. Subpoena witness, request evidence
ii. Administer oaths
iii. Take testimony
iv. Take evidence
v. Examine books & records
vi. Investigate in or outside the state
vii. Issue cease & desist
c. Administrators CANT
i. Levy firms dont have legal jurisdiction
ii. Imprison
iii. Change state securities law
d. All Administrator can do is revoke registration
e. Does not have civil authority or criminal authority
2. Penalties under the USA
a. Civil liabilities Investors may sue and be made whole
b. Customers can recover:
i. Cost of the transaction
ii. Cost of the advice
iii. Cost of the attorney fees
iv. Plus interest
v. Less income earned from investment
c. Statue of limitations
i. Investors must bring suit by the earlier of:
1. 3 years from violation
2. 2 years from discovery
d. Rescission
i. An offer to unwind/reverse an improper transaction
ii. The customer is made whole
iii. Remains valid for 30 days
3. Criminal penalties under the USA
a. Criminal
i. $5K/year, per count
ii. 3 years in jail
b. Statute of limitations
i. 5 year criminal statue
4. Penalties under Act of 1940
a. Civil investor made whole
b. Criminal 10K fine, 5 years in jail, Enforced by Federal Gov, not the Administrator

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