SERIES-63 practice question 21 of 35

In which of the following scenarios will the investment adviser be subject to criminal fraud charges?

Answer options

A: An adviser owns the stock of TweedleDee Corporation and has issued a report recommending the stock as a “buy” without disclosing the fact that it owns the stock.

B: An adviser owns the stock of TweedleDee Corporation and has issued a report recommending the stock as a “buy,” disclosing the fact that it owns the stock

C: An adviser sells its shares of TweedleDee Corporation after issuing a report recommending the stock as a “buy.” Correct answer

D: all of the above. It is considered criminal fraud for an investment adviser to make any recommendations on a security in which it has or plans to have a position.

Correct Answer:

C. An adviser sells its shares of TweedleDee Corporation after issuing a report recommending the stock as a “buy.”

Explanation

An adviser that sells its shares of TweedleDee Corporation after issuing a report recommending the stock as a “buy” is subject to criminal fraud charges for willfully deceiving its clients. The adviser who recommends the stock as a buy without disclosing the fact that it owns the stock is engaging in a prohibited activity for non-disclosure, but would be unlikely to face criminal fraud charges.

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