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FINRA Uniform Securities State Law Series63 : Uniform Securities Agent State Law Examination

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Question 5: Sam Shade had his agent's license revoked by the state of Washington for repeatedly making
misleading
claims about various investment to investors. He had had it with all the rain anyway and decided to
move
to the sunshine state of Florida. His brother-in-law was a computer whiz who made money on the
side
(more than his day job provided, in fact) by supplying illegal immigrants with official-looking
documentation, including social security numbers. Sam Shade became Ian Creed in a few clicks of the
mouse. As Ian Creed, Sam was hired by Sunny Investment Advisers, an investment adviser firm
located
in the Florida Keys, in a clerical role. As such, Sam/Ian had access to the confidential information of
the
firm's clients, which he and his brother-in-law utilized for the purpose of identity theft. Under the
Uniform
Securities Act guidelines, when Sam and his brother-in-law are caught in their illegal activities,
A. Sunny Investment Advisers will not be held liable if it can prove that there was no way it could
have or
should have known of the revocation of Sam Shade's (aka Ian Creed) license.
B. Sunny Investment Advisers will be subject to criminal prosecution for employing an individual
whose
license had been revoked by the Administrator of another state since it obviously did not use due
diligence in hiring Ian Creed, aka Sam Shade.
C. Sunny Investment Advisers will be subject to civil penalties for employing an individual whose
license
had been revoked by the Administrator of another state.
D. Sunny Investment Advisers will be subject to both criminal prosecution and civil penalties for
employing an individual whose license had been revoked by the Administrator of another state since
it
obviously did not use due diligence in hiring Ian Creed, aka Sam Shade.
Correct Answer: A
Explanation: When Sam and his brother-in-law are caught, Sunny Investment Advisers will not be
held
liable if it can prove that there was no way it could have or should have known of Sam Shade/Ian
Creed's
license revocation. The drafters of the Uniform Securities Act were cognizant of the fact that
employees
can be remarkably deceptive when applying for a position, and because of this the Act indicates that
the
investment adviser must either "have known or should have known" of the Administrator's adverse
decision against the employee in order to itself be deemed liable.