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business
fraud examination

Questions and Answers of Fraud Examination

Mike Nugent and his wife, Mary, have individual accounts with ABCDE broker-dealer.Along with their individual accounts, they also have a joint account with rights of survivorship. Mike’s individual
You have a new client who is going to open an individual cash account and an individual margin account in their name. At the same time, the client also wants to open a joint account with a spouse, a
SIPC provides coverage for which of the following securities held in a customer’s account?(A) Common stock(B) Municipal bonds(C) REITs(D) All of the above
SIPC protects each separate customer up to(A) $500,000 in cash and securities with no more than $250,000 cash(B) $500,000 in cash and securities with no more than $100,000 cash(C) $400,000 in
The FDIC covers each(A) depositor for up to $250,000(B) investor for up to $250,000(C) depositor for up to $500,000(D) investor for up to $500,000
Which of the following is TRUE about SIPC?(A) It is an agency of the U.S. government.(B) Investment advisers are required to be members of SIPC.(C) Banks selling municipal securities must be SIPC
A client is on an overseas trip and wishes for the brokerage firm to hold their confirmations and account statements until they return. Which of the following is TRUE regarding holding a client’s
Business continuity plans (BCPs) must be reviewed(A) annually by a principal of the firm(B) semiannually by a principal of the firm(C) annually by FINRA(D) as needed by FINRA
As part of FINRA’s business continuity plan, member firms must provide the emergency contact information for __________ principal(s) of the firm to contact in the event of an emergency.(A) one(B)
Which TWO of the following are the maximum penalties for insider trading violations?I. 20 years in prison per violation II. 25 years in prison per violation III. $5 million per individual per
The CEO of OEC Corporation tells a lifelong friend that OEC will be announcing an acquisition of COE, Inc., the following week.The friend acts on this knowledge and purchases shares of COE and shorts
Which of the following is liable if a trade is made on material nonpublic information?(A) The tippee(B) The tipper(C) Both (A) and (B)(D) Neither (A) nor (B)
Which of the following are TRUE statements regarding civil penalties that may be imposed for insider trading violations?I. Civil penalties may be imposed only on registered persons.II. The civil
Which of the following investors are contemporaneous traders who can sue insiders in court for insider trading violations?I. Buyers who purchased stock at the time that insiders were buying II.
A client is the CEO of ABC Corporation, which is going under some significant changes. The CEO shares some information with their registered regarding those changes. Which of the following could be
Judging by a client’s trading pattern, you have a very strong suspicion that they are trading on inside information. You should(A) contact a principal immediately(B) contact the SEC and send it
One of your customers has made three cash deposits into their account over the last few weeks of $9,900 each. This is called(A) structuring(B) layering(C) integration(D) placement
You are in the process of opening a new account. Which of the following indications of money laundering should you be concerned with?I. Irrational transactions that are inconsistent with the
A customer is about to open a new account.Which of the following indicates that your new customer may be interested in laundering money?(A) A concern with U.S. government reporting requirements(B) A
Which of the following transactions are considered structured?I. Mr. and Mrs. Jones each transfer$9,500 to their joint account on the same day.II. Mr. Smith wiring $9,000 to an account on three
Which of the following establishes the U.S. Treasury Department as the regulator for anti-money-laundering programs?(A) The Bank Secrecy Act(B) OFAC(C) SDN(D) None of the above
Which of the following transactions require the filing of Form 112 with FinCEN?(A) A check deposit of $35,000(B) A credit card transaction of $20,000(C) A cash deposit of $15,000(D) All of the above
All of the following are stages of money laundering EXCEPT(A) placement(B) intermediation(C) layering(D) integration
An investor making several large cash deposits into their brokerage account may indicate that they are engaged in(A) money laundering(B) insider trading(C) front-running(D) a takeover
All brokerage firms are required to have customer identification programs and to check the names of any new customers against(A) the SDN list maintained by OFAC(B) the SDN list maintained by the
Mr. Smith buys 1,000 shares of HIJ common stock at $22 per share. Several months later, HIJ is trading at $20.40–$20.55, and the registered representative offers to purchase back the shares for
Which of the following is a violation that includes a form of market manipulation?(A) Commingling(B) Frontrunning(C) Pump and dump(D) Interpositioning
When FINRA is considering the possibility that a brokerage account is being churned, all of the following are considered EXCEPT(A) the profit or loss(B) the amount of trades(C) the client’s
All of the following are considered violations EXCEPT(A) frontrunning(B) hypothecation(C) signatures of convenience(D) interpositioning
Which of the following is selling dividends?(A) A registered representative encouraging investors to withdraw reinvested mutual fund dividends to purchase more securities so that the registered
All of the following are acceptable contributions from a registered rep to a client EXCEPT(A) a baby shower gift of $80(B) a gift of theatre tickets for a client and daughter for a total of $250(C) a
Matching orders is(A) combining fully paid securities and margined securities to use as collateral(B) the illegal manipulation of a security(C) bringing in a third party to execute a trade(D) buying
A client purchases a security and sells it shortly after without ever making a payment. This is a violation called(A) matching orders(B) freeriding(C) commingling(D) interpositioning
Which of the following are violations?(A) Commingling of funds(B) Interpositioning(C) Signatures of convenience(D) All of the above
The prohibited action of mixing a customer’s securities with the account of the broker-dealer is called(A) free riding(B) hypothecation(C) commingling(D) conjoining
The 5% markup policy applies to(A) riskless or simultaneous transactions(B) markups and markdowns on stock sold from and purchased for a firm’s inventory(C) commissions charged when executing
Municipal finance professionals may make campaign contributions to a municipal candidate they’re allowed to vote for up to _________ per election.(A) $100(B) $250(C) $500(D) $1,000
All of the following are important factors when determining the markup or commission on a municipal bond trade EXCEPT(A) the fact that you and the firm you work for are entitled to make a profit(B)
The 5% markup policy applies to which of the following over-the-counter transactions?(A) Securities sold with a prospectus(B) Municipal bond transactions(C) Sales of outstanding shares of corporate
All of the following may be factors used in determining the markup charged to a customer EXCEPT(A) dealer cost(B) the market price of the security(C) the size of the trade(D) expenses of executing
The 5% markup policy applies to which of the following types of secondary market transactions?(A) Riskless or simultaneous transactions(B) Common stock sold from a dealer’s inventory(C) Proceeds
The 5% markup policy applies to which of the following?(A) IPOs(B) The sale of mutual fund shares(C) Regulation D offerings(D) The over-the-counter sale of outstanding non-exempt securities
Under FINRA rules, a brokerage firm must keep trade confirmations, order tickets, and advertisements for a minimum of(A) two years(B) three years(C) four years(D) six years
Broker-dealer records must be kept easily accessible for at least(A) six months(B) two years(C) three years(D) six years
Under FINRA rules, all of the following brokerage firm records must be kept for a minimum of three years EXCEPT(A) ledgers(B) trade confirmations(C) order tickets(D) U-4 forms of former employees
Under FINRA rules, which of the following records must be kept by a brokerage firm for a minimum of six years?I. Customer account statements II. U-5 forms III. Records of all trades executed IV.
Which of the following records must be maintained by brokerage firms for six years?I. Ledgers II. Closed accounts III. U-4 forms of terminated employees IV. Blotters(A) I and III(B) II, III, and
A broker-dealer must keep corporate or partnership documents for(A) two years(B) three years(C) six years(D) a lifetime
Simplified arbitration is used to resolve disputes for up to(A) $10,000(B) $25,000(C) $50,000(D) $100,000
In which of the following procedures for handling complaints is the decision binding and cannot be appealed?(A) Code of procedure(B) Mediation(C) Arbitration(D) Both (B) and (C)
All of the following is TRUE about arbitration EXCEPT(A) members may take non-members to arbitration(B) non-members may take members to arbitration(C) members may take other members to arbitration(D)
Which of the following disputes must be resolved using arbitration?I. A dispute between a FINRA member and a registered representative II. A dispute between a FINRA member and a customer III. A
Retail communications must be(A) approved by a principal of the firm(B) filed with FINRA at least 10 business days prior to first use(C) made available to more than 25 retail investors within a
FINRA divides communication into which of these three categories?(A) Commercial, institutional, and retail(B) Institutional, retail, and correspondence(C) Written, verbal, and text(D) Industrial,
Which of the following are TRUE regarding arbitration and mediation?(A) Arbitration and mediation decisions are both appealable.(B) Arbitration and mediation decisions are both binding and
Nothing but Net Broker-Dealer doesn’t require their customers to sign an arbitration agreement. One of their customers believes money was stolen from their account and decides to take Nothing but
Miesha Silva has written a letter of complaint regarding a recent purchase of blue chip stocks to their broker-dealer.Upon receipt of the complaint, the broker-dealer must(A) return the commission
Zimbot Corp. has just announced a 30-cent dividend to shareholders of record. If the record date is Friday, October 8, when is the first day an investor can purchase the stock and not receive the
Mutual funds must send out financial statements to shareholders at least(A) monthly(B) quarterly(C) semiannually(D) annually
The SEC and FINRA require that customer account statements be sent out at least(A) every time a trade takes place(B) monthly(C) semiannually(D) quarterly
The ex-dividend date is _______ business day(s) before the record date.(A) one(B) two(C) three(D) five
The ex-date is(A) the date on which the corporation ceases paying a dividend(B) the date on and after the date the seller is entitled to the dividend(C) the third business day before the record
MKR Corp. has decided to pay its common shareholders a dividend. Place the following dividend dates in order from first to last.I. The payment date II. The declaration date III. The ex-date IV. The
If your client, Sara Silver, requests a statement of a brokerage firm’s financial condition, what document(s) must the brokerage firm send to Sara immediately?(A) The most recent income
Declan Smith has an account at Ayla Broker-Dealer. Declan has not traded any securities at Ayla Broker-Dealer for more than three years. How often is Ayla Broker-Dealer required to send an account
Dim Outlook Securities has procedures allowing their registered representatives to borrow money from and lend money to certain customers. Under what circumstance may a registered representative of
The term “specified adult” refers to investors(A) aged 65 or older(B) individuals aged 18 or older with a mental impairment that render them unable to protect their own interests(C) individuals
If a member believes that the financial exploitation of a specified adult has taken place, what action may they take?(A) Contact FINRA to find out what action to take.(B) Contact the SEC to find out
All accounts for specified adults must have a(A) named “Trusted Contact Person”(B) named “Beneficiary”(C) signed “Proportionate Sharing Agreement”(D) named “Associated Person”
Under MSRB rules, a client’s confirmation must include(A) the markup or markdown(B) the location of the bond resolution(C) the settlement date(D) whether the trade was executed on a dealer or
The certificate sent out to customers at the completion of the trade, which supplies all the details of the trade, is called a(n)(A) proxy(B) order ticket(C) confirmation(D) account statement
A client’s confirmation must include I. the markup or markdown for a principal transaction II. the commission for an agency transaction III. a description of the security IV. the registered
All of the following must be included on a customer’s trade confirmation EXCEPT(A) the commission, if the trade was executed on an agency basis(B) the price of the security(C) the customer’s
For member-to-customer transactions, the member firm must send a trade confirmation(A) at or prior to the completion of the transaction(B) no later than one business day after the trade date(C) no
Broker-dealers, investment companies, and investment advisers must have written policies designed to protect customers’records and information. This falls under(A) Regulation S-P(B) Regulation D(C)
Diamond Broker-Dealer sent a client a confirmation of their latest trade of Mineshaft Corp. common stock. Which of the following items should be on the confirmation?I. The trade date and the
Prior to an initial recommendation to a client, a customer relationship survey must be provided to that client. This falls under(A) Regulation S-P(B) Regulation BI(C) Regulation M(D) Regulation T
All brokerage firms are required to have safeguards in place to protect customers’non-public information. The SEC regulation that outlines brokerage firm requirements to safeguard customers’
Which of the following are TRUE regarding securities transactions in cash?I. Payment is due the same day as the trade date regardless of the type of security.II. Payment is due the next business day
What is the regular way settlement for option transactions?(A) T+1(B) T+2(C) T+3(D) T+4
Issued transactions settle(A) in one business day after the trade date(B) in two business days after the trade date(C) in three business days after the trade date(D) on a date to be assigned
Treasury bonds settle in(A) one business day after the trade date(B) two business days after the trade date(C) three business days after the trade date(D) ten business days after the trade date
When is the last day an investor can buy the stock“regular way” and receive the dividend?(A) Monday, September 15(B) Tuesday, September 16(C) Wednesday, September 17(D) Monday, September 22
A corporation announces a dividend with record date Thursday, September
Which of the following are TRUE regarding a regular-way purchase of municipal bonds?I. The settlement is in one business day after the trade date.II. The settlement is in two business days after the
What is the settlement date for a corporate bond transaction?(A) One business day after the trade date(B) Two business days after the trade date(C) Three business days after the trade date(D) Ten
What is the settlement date?(A) Monday, October 6(B) Tuesday, October 7(C) Wednesday, October 8(D) Thursday, October 9
A customer purchases 1,000 shares of XYZ common stock on Friday, October
When may a registered representative open a joint account with a client?I. Under no circumstances II. If obtaining approval from a principal III. If obtaining a signed proportionate sharing agreement
Principals must approve trades made by registered representatives(A) at or prior to execution(B) at or prior to completion of the transaction(C) the same day as execution of the order(D) none of the
A customer wishes to purchase a security that does not fit their investment objectives.After making them aware of that fact, they decide that they want to go ahead with the purchase anyway. What
Gina wants to buy 1,000 shares of Biff Spanky Corporation at $1.20 per share. As Gina’s agent, you inform Gina that the investment doesn’t fit into their investment profile and is probably too
Which of the following items are required on an order ticket?I. The time of the order II. A description of the security III. Whether the rep has discretionary authority over the account IV. The
One of your clients is nearing retirement age, and their main investment objective is risk aversion. However, your client is dead set on purchasing a low-priced stock that you deem too risky
All of the following information would be found on an order ticket EXCEPT(A) the name of the brokerage firm(B) the customer’s name(C) the quantity of securities(D) the investor’s occupation
Which of the following information is required on an order ticket?I. The registered rep’ s identification number II. A description of the securities III. The time of the order IV. Whether the order
All order tickets must be signed by(A) a principal(B) the customer(C) the state administrator(D) a compliance officer
Which of the following individuals are exempt from FINRA registration?I. A person whose functions are solely clerical II. A person who solely and exclusively is involved in transactions of municipal
Which of the following is true when a registered representative leaves a member firm?(A) The firm files a U-4 form, and the registered representative has up to one year to get registered with another
Regarding continuing education, which of the following is TRUE?(A) Member firms must have annual meetings, and registered persons must take the regulatory element every two years.(B) Member firms

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