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Wiley FINRA Series 63 Exam Review 2017: The Uniform Securities Sate Law Examination

About the Series 63 Exam xi

About This Book xv

About the Test Bank xvii

About the Securities Institute of America xix

Chapter 1 Federal Law Review 1

The Securities Act of 1933 1

The Prospectus 2

The Final Prospectus 2

Misrepresentations 3

The Securities Exchange Act of 1934 3

Net Capital Requirement 7

Customer Coverage 7

Fidelity Bond 8

The Insider Trading and Securities Fraud Enforcement Act of 1988 8

Firewall 9

The Telephone Consumer Protection Act of 1991 9

National Securities Market Improvement Act of 1996 10

The Uniform Securities Act 11

The Uniform Prudent Investors Act of 1994 12

The Department of Labor Fiduciary Standard 13

The Patriot Act 13

Regulation S-P 14

Identity Theft 15

Chapter 2 Definitions of Terms 17

Security 17

Person 19

Broker Dealer 20

Pension Consultants 22

Investment Counsel 22

Form ADV 23

Investment Adviser Registration Database (IARD) 24

Investment Adviser Representative 25

Offer/Offer to Sell/Offer to Buy 27

Sale/Sell 28

Guarantee/Guaranteed 28

12B-1 Fees 28

Contumacy 29

Federally Covered Exemption 29

Power of Attorney 30

Escheatment 30

Pretest 31

Chapter 3 Registration of Broker Dealers, Investment Advisers, and Agents 37

Registration of Broker Dealers and Agents 37

Agent Registration 38

Registering Broker Dealers 39

Financial Requirements 40

Broker Dealers on the Premises of Other Financial Institutions 40

Hiring New Employees 41

Resignation of a Registered Representative 42

Registering Agents 43

Canadian Firms and Agents 45

Investment Adviser Registration 45

The National Securities Market Improvement Act of 1996/The Coordination Act 46

Investment Adviser Representative 47

Investment Adviser Registration 48

Capital Requirements 48

Exams 49

Advertising and Sales Literature 50

Brochure Delivery 51

Wrap Accounts 51

Pretest 53

Chapter 4 Securities Registration, Exempt Securities, and Exempt Transactions 57

Exempt Securities 57

Securities Registration 58

Registration of IPOs Through Coordination 58

Registration Through Notice Filing 59

Registration of Non-Established Issuers/Registration Through Qualification 59

Exempt Securities/Federally Covered Exemption 61

Exempt Transactions 62

Pretest 67

Chapter 5 Professional Conduct and Prohibited and Fraudulent Actions 73

Fraud 73

Professional Conduct 74

Suitability 74

Market Manipulation 76

Customer Complaints 77

The Role of the Investment Adviser 77

Additional Compensation for an Investment Adviser 78

Agency Cross Transactions 78

Disclosures by an Investment Adviser 78

Investment Adviser Contracts 80

Private Investment Companies/Hedge Funds 80

Fulcrum Fees 80

Soft Dollars 81

Borrowing and Lending Money 82

Free Services 83

Pretest 85

Chapter 6 The State Securities Administrator and the Uniform Securities Act 93

Actions by the State Securities Administrator 93

Cancellation of a Registration 94

Withdrawal of a Registration 95

Actions Against an Issuer of Securities 95

Rule Changes 95

Administrative Orders 95

Interpretive Opinions 97

Administrative Records 97

Investigations 98

Civil and Criminal Penalties 98

Jurisdiction of the State Securities Administrator 99

Administrator’s Jurisdiction over Securities Transactions 100

Radio Television and Newspaper Distribution 102

Right of Rescission 103

Statute of Limitations 103

Pretest 105

Answer Keys 111

Glossary of Exam Terms 119

Index 185

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BigHand Announces Voice and Template Management Integration to Revolutionize Document Production for Law Firms


BigHand, a software development company providing speech, workflow and document creation tools to law firms, today announced an integration between their digital dictation software version 5.0.5 and template management solution, BigHand Create version 7.5. The integration will reduce the number of clicks and simplify the process of producing legal documents for both attorneys and support staff, enabling them to dictate, proofread and generate finished documents directly within the BigHand system.

BigHand ( is best known for offering voice solutions, including digital dictation, speech recognition and mobility apps, and has expanded their offering to include workflow and document creation tools that enable firms to streamline even more processes. BigHands modules work independently or in conjunction with one another, to give clients the benefit of a multi-faceted solution that is highly configurable to suit their needs. The decision to further integrate the voice and template management tools was the next logical step.

Eric Wangler, President, BigHand North America, comments, The integration between BigHand Voice and BigHand Create will make it much simpler for users to create documents from dictations. The process of typing up a dictation or proofreading text transcribed by speech recognition is the same as before, but the steps required to transform that text into a great looking, finished document are simpler and more user-friendly. With this integration, users will be able to launch Microsoft Word templates directly within BigHand, whether it be a pleading, a letter, or any other document, and the text is automatically carried over. Any editing, including with the BigHand Hyperstyles formatting tools can be completed within Microsoft Word.

For a firm already using BigHand Digital Dictation and Speech Recognition, the integration will automate the majority of the back-end document production process. Wangler continues, This is a really exciting prospect for law firms producing hundreds of documents a day. The time involved in creating so many documents and the pressure to be highly productive means people often take shortcuts, like starting a new document by working directly over an old one. This can cause complex document corruptions, which can take even longer to fix. By automating a large portion of the administrative work, and lifting the burden from their staff, firms can ensure all documents are produced to a consistently high quality, while freeing up administrative time for higher-value tasks.

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Firms fined for floating data regulations over phone and text campaigns

Firms which flouted data regulations by phoning more than 100,000 people and sending more than four million texts have been fined by an information rights body.

The Information Commissioner’s Office (ICO) took the action against Xternal Property Renovations and PRS Media in separate investigations.

Glasgow-based Xternal Property Renovations was fined £80,000 for making nuisance phone calls.

The ICO found the firm broke the law by making more than 109,000 calls to people registered with the telephone preference service (TPS) who have opted out of receiving marketing calls.

It said the company – which provides property and maintenance repairs services – should have screened the list of people it planned to call against the details of TPS subscribers and ensured its telesales staff knew how to comply with the law.

Members of the public said they received calls from early morning until late at night and were concerned about how the firm got their details.

The company has also been issued with a legal notice compelling it to stop instigating the unlawful calls.

PRS Media, trading as Purus Digital, was fined £140,000 for sending about 4.4 million spam texts.

The ICO found the company – based in Haverfordwest, Pembrokeshire – did not have the consent of the people it sent marketing texts to.

The information it used to send text messages had been obtained from its own competition website, where people were required to agree to marketing as a condition of entering competitions on the firm’s website.

The ICO, however, said this did not amount to consent as the law states people must have a genuine choice over whether or not to consent to marketing.

Ken Macdonald, head of ICO regions, said: “Nuisance marketing, whether it’s by calls to people’s landline or mobile, or through spam texts, causes disruption, annoyance and, in the worst cases, serious upset.

“We issue fines like these to firms behind nuisance marketing to send a clear message that such action will not be tolerated.

“The ICO is looking forward to the commencement of our new powers, announced by the government last year, which will allow us to fine the directors of nuisance marketing firms as well as the companies themselves.”

Investigations into the firms’ marketing breaches were prompted by complaints from members of the public.

Alex Neill, Which? managing director of home services, said: “Companies that pester people with unlawful nuisance calls and spam texts are rightly being held to account by the regulator.

“The Government has promised further powers to fine directors who allow this to happen. These proposals should come into force as soon as possible to crack down on this modern menace.”

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Firms behind jobs program spurned by Greitens wooing other states, report says

In January, a Post-Dispatch story put a spotlight on a bill under consideration by the Missouri Legislature that would have issued $125 million in tax credits to help spur investments in rural communities.

After comments by Gov. Eric Greitens during his State of the State address, blasting Missouri’s “rigged system” of tax credits, the proposal fizzled.

An investigative report by The Pew Charitable Trusts, published Thursday, took a wider look at rural-jobs tax credits and found that several states that evaluated similar programs found they “failed to deliver promised jobs and tax revenue.”

That hasn’t stopped lobbyists from pushing the programs. Rural jobs bills were proposed in 10 other states this year. Last week, Utah Gov. Gary Herbert, a Republican, signed one into law.

Reporter Jen Fifield wrote:

In rural communities across the country, jobs are disappearing and people are moving away, driving a desperation that helped elect Donald Trump president.

But as state lawmakers look for ways to bring life to these long-struggling areas, many are falling prey to a complex economic development approach, pushed hard by investment firms that stand to benefit, that has failed to live up to its promises.

She added:

The programs are so complex, and the promises so appealing, that states typically don’t take a close look at them until it’s too late, according to 10 economists and policy analysts who have studied them. Many critics, such as Steven Miller, senior vice president of the Nevada Policy Research Institute, call the programs “schemes.” Miller says he expects a public backlash once they “have gone belly up and taxpayer dollars have been used for private benefit.”

The “Show Me Rural Jobs Act” would have been the state’s third go-round in 20 years with a type of tax credit that subsidizes investments in a fund that makes loans to or investments in businesses.

A common thread to these programs — in Missouri and other states — is that the laws are set up with narrow eligibility rules, giving a major advantage to a handful of investment firms that help design and promote the bills.

Perhaps the biggest player – the company which lobbied the state for the rural jobs program – is Advantage Capital Partners, with offices in Clayton and New Orleans. An Advantage principal declined to comment for our story.

Neither Advantage nor the other major investment firms talked to Fifield, either.

A second story in the Pew investigation is scheduled to be published soon.

Political Fix from the St. Louis Post-Dispatch

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Trump Signs Law Quietly Undercutting Obama's Protections For LGBTQ Workers

WASHINGTON ― President Donald Trump signed legislation Monday that makes it harder for the federal government to keep track of companies’ labor violations when awarding contracts.

Under rules written during President Barack Obama’s administration, firms that bid on federal contracts would have to disclose their labor violations from the previous three years, including on laws pertaining to collective bargaining, safety and wages. They wouldn’t necessarily be barred from winning a contract, but they would have to come into compliance with the law.

The GOP-controlled House and Senate voted to overturn those rules, and Trump promised to “remove every job-killing regulation we can find” when he signed the bill.

But a less-noticed effect of this law is that it also undercuts Obama’s executive order protecting lesbian, gay, bisexual, transgender and queer contractors from discrimination ― an order that, so far, Trump has promised to keep intact. 

On July 21, 2014, Obama signed an order barring federal contractors from discrimination on the basis of sexual orientation and gender identity. Race, color, religion, sex and national origin were already protected categories.

That same day, he signed the Fair Pay and Workplaces executive order, which required the disclosure of violations and compliance with labor laws ― including the newly expanded anti-discrimination measure. 

But congressional Republicans and Trump effectively killed the regulations that came from the Fair Pay and Workplaces executive order, making it harder for the federal government to ensure that contractors are complying with the law.

“The [LGBTQ] executive order still exists,” said Camilla Taylor, senior counsel with Lambda Legal. “It’s still the law that federal contractors are not permitted to discriminate. The problem is contracting officers are not going to be given disclosures about when they do. So the ability of federal contracting officials to deny contracts to bad actors has been gutted.”

“It’s clear the president does not value workers across the board, including but not limited to, LGBTQ workers,” added Sarah Warbelow, legal director at the Human Rights Campaign.

There are other ways the federal government could still discover labor violations from companies bidding on contracts. But under the measure signed by Trump, the Office of Federal Contract Compliance Programs ― which is part of the Department of Labor ― has less authority to enforce the rules.

David Stacy, HRC’s government affairs director, said he doesn’t think the Trump administration deliberately used the repeal of the Fair Pay and Workplaces rules to undercut the LGBTQ executive order. But it still showed the president is “willing to override protections regardless of its impact on LGBTQ people.”

Taylor, however, said it was “absolutely” an attempt to undermine Obama’s protections.

“How meaningful are your protections if companies aren’t required to disclose when they violate the law? The ability of the federal government to deny federal contracts on such a basis have been taken away,” she said. “Our protections are only as valuable as the enforcement tools are effective.”

LGBTQ advocates anticipate that Trump may also release a so-called “religious liberty” executive order at some point, which could allow people and organizations to discriminate against LGBTQ people if their “conscience” told them it was fine. In early February, a draft of such an order leaked, although it has not yet been issued. The White House has insisted that Trump is “respectful and supportive of LGBTQ rights.” 

Want more updates from Amanda Terkel? Sign up for her newsletter, Piping Hot Truth, here.

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Top tech firms avoid encryption issue in government talks

Executives commit to removing extremist material but do not address Amber Rudd’s concerns after Westminster attack

WhatsApp and Facebook messenger icons are seen on an iPhone

WhatsApp was used by Khalid Masood shortly before he carried out his deadly attack in Westminster.
Photograph: Phil Noble/Reuters

Top tech firms avoid encryption issue in government talks

Executives commit to removing extremist material but do not address Amber Rudd’s concerns after Westminster attack

Leading tech firms have promised to work closely with the government to remove extremist material from the internet and social media following a meeting with the home secretary, Amber Rudd.

However, while senior executives from Facebook, Twitter, Google and Microsoft pledged to “to tackle this vital issue”, a joint statement from the companies after the meeting made no mention of dealing with encrypted messages.

Rudd called the meeting after it emerged that Khalid Masood had used WhatsApp, which encrypts messages sent through it, shortly before carrying out the attack in Westminster that left five people dead, including himself.

Rudd said at the weekend that messaging services with end-to-end encryption should not “provide a secret place for terrorists to communicate with each other”, prompting criticism that she did not understand the technical and logistical hurdles needed to end this.

The joint message from the tech firms, which met Rudd on Thursday afternoon, focused on curbing extremist material and “ensuring terrorists do not have a voice online”.

In her own statement, Rudd said this had been the focus of the meeting but insisted she planned to return to the issue of encryption “through further, separate discussions”.

“I am clear that government and industry need to work more closely together on this issue so that law enforcement and the intelligence agencies can get access to the data they need to keep us safe,” she said.

The joint statement was signed by Hugh Milward of Microsoft, Nick Pickles from Twitter, Richard Allan from Facebook – the parent company of WhatsApp – and Google’s Nicklas Lundblad. It thanked Rudd for letting them “share with you details of the progress already made in this area and to hear how the UK government is developing its approach in both the online and offline space”.

It added: “Our companies are committed to making our platforms a hostile space for those who seek to do harm and we have been working on this issue for several years.”

The firms would “look at all options for structuring a forum to accelerate and strengthen this work, ranging from existing international, multilateral organisations, developing dedicated non-governmental organisations, to enhancing and broadening the current informal collaboration sessions that companies already conduct”.

It set out three main methods for progress: developing better tools to automatically identify and remove terrorist propaganda; helping smaller tech companies learn from others about such methods, and supporting ways to “promote alternative and counter-narratives”.

Rudd said the meeting had been useful and focused on “the issue of access to terrorist propaganda online and the very real and evolving threat it poses. I said I wanted to see this tackled head-on and I welcome the commitment from the key players to set up a cross-industry forum that will help to do this.

“In taking forward this work I’d like to see the industry to go further and faster in not only removing online terrorist content but stopping it going up in the first place.

“I’d also like to see more support for smaller and emerging platforms to do this as well, so they can no longer be seen as an alternative shop floor by those who want to do us harm.”

Executives from Apple were not at the meeting, reportedly because it did not deal with the issue of encryption.

Yvette Cooper, the chair of the home affairs select committee, said the outcome of the meeting was “a bit lame”.

“All the government and social media companies appear to have agreed is to discuss options for a possible forum in order to have more discussions,” the Labour MP said.

“Having meetings about meetings just isn’t good enough when there is still illegal terrorist recruitment propaganda up online. They need to get on with taking it down, and to say what resources they will put into doing this.”

She said the committee would continue to pursue the issue.. “Social media and the internet can be a fantastic force for immense good, but they also need to get their act together and stop the dangerous illegal poison spreading online.”

Rudd has faced scepticism over her demands on encryption, with industry analysts saying it is also routinely used for legitimate web tasks, such as shopping and banking, which could be compromised if gaps were introduced. But the home secretary has received support from the police.

The acting head of Scotland Yard, Craig Mackey, said the Westminster attack was a wake-up call for technology companies over such issues.

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News in brief: tech firms ‘must do more’ on terror; data breaches shoot up; gloom at toxic online spaces

Your daily round-up of some of the other stories in the news

Tech firms ‘must do more’ on terrorism

Amber Rudd, the UK home secretary, was due to meet some of the biggest tech companies on Thursday to tell them they must do more to tackle extremism and terrorism – including, according to TechCrunch, saying that law enforcement must be able to “get into situations like encrypted WhatsApp”.

Her meeting with the big tech players, including Microsoft, Google, Twitter and Facebook, comes in the wake of last week’s terrorist attack in London in which four people died and many more were injured. After Rudd appeared on TV last weekend calling for access to encrypted message services, Naked Security joined the chorus of experts pointing out that what she was calling for won’t work.

Rudd’s meeting with the big four comes a day after EU justice commissioner Věra Jourová said that the European Commission in June will propose new measures to make it easier for law enforcement to access data on platforms such as WhatsApp. Jourová told Euractiv that she would announce “three or four options”, and added: “I am in a very intensive debate with the big four IT providers.”

Data breaches up 566% in 2016

Last year was not a good year for data protection, with more than 4bn records leaked around the world, according to IBM Security, up 566% (no, there isn’t a missing decimal point) on 2015 from 400m in 2015.

IBM said that healthcare was one of the the most targeted industries with 12m records compromised, said IBM in its report, although it fell back to third place last year as attackers refocused their efforts on the financial services sector.

Ransomware has shifted from being “a nuisance to an epidemic”, said Caleb Barlow of IBM, who added that the lost records were largely unstructured data such as email archives, business documents and source code, rather than credit card details and passwords.

The future of the internet is gloomy

Trolls, hate speech and general unpleasantness are souring the internet, according to the Pew Research Center. Its latest report on the future of free speech online gloomily predicts that “cyberattacks, doxing and trolling will continue, while social platforms, security experts, ethicists and others will wrangle over the best ways to balance security and privacy, freedom of speech and user protections”.

More than 1,500 experts, scholars and thought leaders responded to the Pew Center’s survey, with a significant minority fearing that the online future will be “more shaped” by negative activities such as harassment and trolling.

The report notes that there are “tangible and intangible economic and political incentives” to trolling, and that participation means both power and profits, with the technology companies providing the platforms having little incentive to rein in the nastiness.

It’s not all gloom, however: one respondent predicted “the rise of social robots, technological tools that can help us act as polite, decent social beings”, with another adding: “Free speech will remain possible, although AI filtering will make a major dent on how views are expressed, and hate speech will be blocked.”

Catch up with all of today’s stories on Naked Security

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North Carolina replaces transgender bathroom law

By Colleen Jenkins and Daniel Trotta

However, the new law replacing the old one bans cities in the state from passing their own anti-discrimination protections for lesbian, gay, bisexual and transgender (LGBT) people until 2020, drawing scorn from civil rights advocates and casting doubt on whether boycotting businesses will return to the state.

Democratic Governor Roy Cooper signed the replacement bill into law after the Republican-controlled state Senate and House of Representatives approved it in separate votes in the capital, Raleigh.

The new measure rescinds House Bill 2, the so-called bathroom bill also popularly known as HB 2, which required transgender people to use the bathrooms, changing rooms and showers in state-run buildings that correspond to the sex on their birth certificate rather than their gender identity.

HB 2’s enactment a year ago prompted boycotts that cost the state economy hundreds of millions of dollars. Deutsche Bank AG and PayPal Holdings Inc reversed expansion plans in the state. Entertainers such as Bruce Springsteen and Itzhak Perlman canceled concerts.

In basketball-crazed North Carolina, the withdrawal of National Collegiate Athletic Association (NCAA) tournament games and the National Basketball Association All-Star game, which had been awarded to Charlotte, reverberated throughout the state.

Under the new law, transgender people are once again free to use the bathroom of their choice, but they lack any recourse should a person, business or state entity eject or harass them.

The new law also denies LGBT people state legal protections in other areas such as employment and housing.

Outraged LGBT advocates, who had wanted an unconditional repeal of HB 2, were already pressuring business and sports organizations not to return.

“This (is) the end of HB 2 in name only. The bill that was passed today is a disgrace, not a ‘fix,’ a ‘reset,’ or a ‘compromise,’ and certainly not a repeal,” Mara Keisling, director of the Washington-based National Center for Transgender Equality, said in a statement.

“Putting any kind of moratorium on civil rights, whether six months or three years long, is dangerous and wrong,” she said.

Deutsche Bank, which in response to HB 2 froze plans to create 250 jobs at its location in Cary, North Carolina, declined to comment on Thursday.

Elected political rivals on both sides of the issue claimed at least partial victories in reaching the compromise that produced the new law. Both Cooper and the Republican House speaker said they expected the NCAA to once again schedule championship events.

NCAA President Mark Emmert said at a news conference posted online by the Raleigh News and Observer newspaper that the board of directors would decide whether the change is sufficient to spur a return.

The deal to replace HB 2 came together on Wednesday night, just ahead of an NCAA deadline to amend the law.

The governor told reporters the law was imperfect but said Thursday’s action would help begin repairing North Carolina’s damaged reputation.

“I wish this were a complete, total repeal, and whenever I get the chance to do that I will do that. … I’m going to fight every single day for LGBT protections,” Cooper said.

HB 2 was passed in response to an ordinance in Charlotte, the state’s largest city, that permitted transgender people to use the bathrooms matching their gender identity. The Charlotte ordinance alarmed social conservatives who, without evidence, feared it would endanger women and girls in intimate spaces.

House Speaker Tim Moore said the new state law protected bathroom safety, but some social conservatives were unsatisfied.

“The truth remains, no basketball game, corporation, or entertainment event is worth even one little girl losing her privacy and dignity to a boy in the locker room, or being harmed or frightened in a bathroom,” said Tami Fitzgerald, executive director of the NC Values Coalition in Raleigh and an outspoken supporter of HB 2.

Cooper, the former state attorney general, has opposed HB 2 from the outset. He unseated former Republican Governor Pat McCrory last year in large part because of the law’s political and economic fallout, political analysts say.

(Reporting by Colleen Jenkins in Winston-Salem, N.C., and Daniel Trotta in New York; Editing by Peter Cooney and Lisa Shumaker)

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