SIE Module 11 Test Bank

1. An investment adviser promises to refund part of his fee in the first year if it is higher than the return on the portfolio he is managing. This most likely represents:

2. An agent of a broker/dealer is convinced that the stock of SuperCo will rise significantly in the future. The agent offers to buy the stock back from her customers at 12% higher than the stock’s current price at any time during the next four months. Is this a permitted act?

3. Painting the tape is a form of market manipulation whereby:

4. Which one of the following Acts increased the penalties for insider trading and also granted the SEC broader rulemaking authority concerning Chinese Walls?

5. Which one of the following represents the manipulation of a security’s market price through large purchases on the stock market in an attempt to prevent the price from falling?

6. Jorge wants to buy 1,000 shares of Super Company stock. Awesome Bank is the market maker for this stock and advertises at 9:00 a.m. on Wednesday that the bid price for Super Company stock is $45.57 and its asking price is $46.10. Jorge places an order to buy 1,000 shares at $46.10, but Awesome Bank claims the bid price is now $45.77 and the ask price is now $46.60. Awesome Bank’s actions represent:

7. Kevin, an agent of a broker/dealer, receives an order from a major client to purchase 750,000 shares of ABC Company stock. Kevin realizes this large purchase will most likely increase the price of ABC Company stock. As a result, prior to purchasing the stock in his client’s account, Kevin purchases 1,000 shares of ABC Company stock for his own personal investment account. Kevin’s actions represent the unethical business practice of:

8. Which one of the following represents the practice of selling large amounts of a commodity or security in order to prevent a rise in the price?

9. Melissa is an agent of a broker/dealer. Unbeknownst to the broker/dealer, she is selling interests in a hedge fund to existing clients of the broker/dealer. Melissa receives a commission on the sales of the hedge fund interests and on the sales of other securities in the clients’ accounts. She is violating the Uniform Securities Act because she is engaging in:

10. Ian is an agent for ABC Brokerage. Tommy is Ian’s client. Tommy wants to purchase stock of Washburn Company, which is a private company not traded on public exchanges. Washburn is offering stock directly through an agency that underwrites private placements. ABC Brokerage has not performed the necessary due diligence on Washburn Company, so their private stock is not on the list of approved products for sale. Ian, however, wants to earn the commission associated with the sale of Washburn Company stock, so Ian completes the transaction on behalf of Tommy by using a third-party broker, Discount Securities, who has approval for Washburn Company stock. Ian has engaged in:

11. Scott, a broker, receives an order from a major client to purchase 600,000 shares of Super Company common stock at the current market price. Scott realizes that a trade of this magnitude is bound to drive up the price of the Super Company stock immediately, at least in the short-term. Therefore, Scott sets aside the client’s request temporarily and first purchases some Super Company common stock for his own personal investment portfolio. After completing this purchase, Scott then fulfills the client’s purchase order. Scott then sells his shares of the Super Company stock in his own account, realizing a large profit. Scott has engaged in the prohibited activity of:

12. Which one of the following would be considered an example of the prohibited practice of market manipulation?

13. Clark is an agent of a broker/dealer. His friend, Ralph, is a 15% owner and CEO of Technologies ‘R’ Us (TRU), a publicly traded company. Ralph and Clark were having lunch together, and Ralph mentioned that TRU has discovered a new technology that will triple the company’s earnings within the next 18 months. No one outside TRU, except for Clark, knows of this discovery. After lunch, Clark purchases additional shares of TRU for his client, Becky. Which one of the following statements is correct?

14. A registered representative can loan money to:

15. An investment adviser is generally not permitted to borrow money from or lend money to a client. However, an investment adviser would be permitted to borrow money if their client is:

16. An agent can share in the profits and losses in a client’s account:

17. Which one of the following represents the act of artificially inflating or deflating the price of a security or otherwise influencing the behavior of the market for personal gain?

18. Which one of the following statements is correct regarding market manipulation?

19. Which one of the following represents the illegal practice of having two securities dealers act as agents for the same exact trade so that two commissions are earned on one trade?

20. Which one of the following represents the practice of buying and selling securities in a cash account without having the money to cover the trade?

21. Which one of the following represents the practice of artificially inflating the price of an owned stock through false and misleading positive statements, in order to sell the cheaply purchased stock at a higher price?

22. All of the following represent prohibited activities, EXCEPT:

23. Which one of the following represents the illegal practice of trading securities to one’s own advantage through having access to confidential information?

24. Insider trading is illegal:

25. Jonathan, a U.S. citizen, has been found guilty of insider trading. What is the maximum penalty with respect to this crime?

26. Which one of the following statements is correct regarding insider trading?

27. Which one of the following represents the maximum civil penalty that can be imposed on an individual that commits an insider trading violation?

28. Insider trading involves trading of a public company’s stock by someone who has non-public, material information. The determination of whether information is material is based on the:

29. Charlie learns about nonpublic material information from his cousin, Lisa, and shares it with a friend, Tom. If Tom uses this insider information to profit in the stock market, who could be prosecuted?

30. FINRA 5130 prohibits member firms from selling initial public offering shares to any customer account in which a restricted person has an interest. For purposes of this rule, which one of the following would be considered a restricted person?

31. FINRA 5130 prohibits member firms from selling initial public offering shares to any customer account in which a restricted person has an interest. For purposes of this rule, which one of the following would be considered a restricted person?

32. Which one of the following is addressed by the Securities Exchange Act of 1934, Section 15c1-2 (Fraud and Misrepresentation)?

33. A broker/dealers is permitted to establish a joint account with a client:

34. Under FINRA Rule 2165, if a member firm has reasonable grounds for believing exploitation of a senior citizen has occurred, the firm can:

35. Which one of the following is forbidden to unregistered persons?

36. A registered representative had a client sign a form that was not completed, which the representative completed later. Is this a possible act that could result in discipline from FINRA?

37. In general, FINRA Rule 4511 requires firms to retain FINRA records and books, which do not have a specified retention period under FINRA rules or applicable Exchange Act rules, for at least: