Under the Uniform Securities Act, failing to disclose material information can be considered fraudulent. A material fact is information that a reasonable investor would consider important when deciding whether to buy, sell, or hold a security. Omissions of material facts can make other statements misleading.

Why the other answers are incorrect:

• Required only for transactions involving institutional investors.
  Incorrect because disclosure requirements apply to all investors, including individual and institutional clients.

• Available in publicly filed documents but not discussed during the presentation.
  Incorrect because an agent or investment professional cannot rely solely on the availability of information elsewhere if failing to disclose it makes the presentation misleading.

• Related only to a security that the client specifically requested information about.
  Incorrect because material facts must be disclosed regardless of whether the client specifically asks about them.

A deliberate omission of information is fraudulent when the omitted fact is material. Material information is information that a reasonable investor would consider important when making an investment decision. This requirement applies to both primary offerings and secondary market transactions.

Why the other answers are incorrect:

• Known by a large number of investors before the recommendation is made.
  Incorrect because the number of people who know the information does not determine whether an omission is fraudulent.

• Related to a new issue of securities being offered to the public.
  Incorrect because fraudulent omissions can occur in both new offerings and existing securities transactions.

• Confirmed to be accurate by the issuer before being omitted.
  Incorrect because the truth or accuracy of information does not determine whether failing to disclose material information is fraudulent. The key issue is whether the omitted fact is important to a reasonable investor.

Securities that qualify as exempt securities do not need to be registered under the Uniform Securities Act. However, the agent and broker-dealer conducting the transaction must still be properly registered. Soliciting transactions involving exempt securities is permitted when registration requirements for the individuals and firms are satisfied.

Why the other answers are incorrect:

• Making a false statement about a material fact when recommending a security.
  Incorrect because agents may not make untrue statements of material facts.

• Ignoring a customer’s specific instructions regarding a transaction.
  Incorrect because deliberately failing to follow a customer’s instructions is an unethical and unlawful practice.

• Leaving out important information because there was limited time during a sales presentation.
  Incorrect because an agent must disclose material facts. A lack of time does not excuse omitting information that could affect an investor’s decision.

A research report that could influence the price of a security is considered material nonpublic information until it has been made available to the public. An agent may not share or act on material nonpublic information. Once the report has been publicly released, the agent may discuss the information with appropriate clients.

Why the other answers are incorrect:

• Contact clients immediately to share the recommendation because the analyst has already completed the report.
  Incorrect because completion of the report does not make it public information.

• Share the recommendation only with clients who already own the security.
  Incorrect because material nonpublic information cannot be shared with any clients before public release.

• Avoid discussing the security with clients because agents are prohibited from discussing research reports.
  Incorrect because agents may discuss publicly available research reports with clients when appropriate.

Under the antifraud provisions of the Uniform Securities Act, making a willfully false or misleading statement in connection with the offer or sale of securities is fraudulent. The violation does not require that a trade occur or that an investor suffer a loss. This situation involves a false claim of inside information, not actual insider trading.

Why the other answers are incorrect:

• Permitted because no customers purchased the security based on the statement.
  Incorrect because fraudulent conduct can occur even when no transaction takes place.

• Considered insider trading because the agent claimed to have confidential information.
  Incorrect because the agent did not possess material nonpublic information or trade based on it.

• Allowed because exaggerated statements made by salespeople are not covered by securities laws.
  Incorrect because misleading statements made in connection with securities transactions are prohibited.

The antifraud provisions of the Uniform Securities Act apply broadly to securities and investment advice involving securities. Fixed annuities are not considered securities under the act, so their sale is not covered by the USA’s antifraud provisions. However, sales of fixed annuities may still be regulated under state insurance laws and the authority of the insurance commissioner.

Why the other answers are incorrect:

• Shares of a mutual fund registered with the SEC.
  Incorrect because registered investment company securities are still subject to antifraud provisions.

• Securities issued by a state or municipal government.
  Incorrect because even exempt securities remain subject to antifraud provisions.

• Exchange-listed options contracts.
  Incorrect because securities transactions involving options remain subject to antifraud rules.

The information Sarah received is material nonpublic information because a potential acquisition at a premium could significantly affect the value of the securities involved. She may not trade on this information until it has been released to the public. Once the information becomes publicly available, she may purchase shares of either company.

Why the other answers are incorrect:

• I and II only
  Incorrect because purchasing either company’s shares before the announcement would involve trading on material nonpublic information.

• I and IV only
  Incorrect because purchasing shares of the company being acquired before public disclosure is prohibited.

• II and III only
  Incorrect because purchasing shares of the acquiring company before the announcement is also prohibited.

A market maker or dealer may buy and sell securities for its own account as part of normal market-making activities. This activity is not considered manipulation when it is performed to provide liquidity and maintain an orderly market. Market manipulation involves actions designed to create artificial prices, misleading trading activity, or false market conditions.

Why the other answers are incorrect:

• Several broker-dealers trading the same security among themselves at increasing prices without transferring actual ownership.
  Incorrect because this creates artificial price movement and false trading volume, which is market manipulation.

• A broker-dealer employee spreading a false takeover rumor and later trading the security to benefit from the price movement.
  Incorrect because spreading false information to influence a security’s price for personal gain is manipulative.

• Investors placing matched orders to create the appearance of increased trading activity.
  Incorrect because matched orders are designed to create a false appearance of market interest and are a form of manipulation.

Order tickets are used to document the details of a customer transaction. They include information such as the customer’s account number, the security order details, order terms and conditions, time of entry, and execution or cancellation information. Customer names and addresses are maintained in customer records but are not included on order tickets.

Why the other answers are incorrect:

• Customer name, customer address, and the price at which the order was executed.
  Incorrect because customer identifying information such as name and address is not included on an order ticket.

• Customer address, account number, and the terms and conditions of the order.
  Incorrect because the customer address is not included on an order ticket.

• Customer name, account number, and the time the order was executed.
  Incorrect because customer name is not included on an order ticket.

Providing fictitious quotations is a deceptive practice because it gives investors inaccurate information about the value or market activity of a security. Fraudulent practices include making false statements or providing misleading information in connection with securities transactions.

Why the other answers are incorrect:

• Recommending government securities to an investor seeking a conservative investment.
  Incorrect because this recommendation may be suitable based on the investor’s objectives and risk tolerance.

• Selling a security to a customer at the current market offer price.
  Incorrect because broker-dealers sell securities to customers at the offer price and purchase securities at the bid price.

• Declining to promise a customer that an investment will avoid losses.
  Incorrect because agents are prohibited from guaranteeing investment results. Refusing to make such a guarantee is appropriate.