The USA cites "prohibited conduct" as:

  1. Fraudulent investment advice:
    "It is unlawful for a person to provide any type of investment advice (for compensation) either directly or indirectly or through publications or writings, to the value of securities or the advisability of investing in, purchasing, or selling securities that:

    • Attempts to employ a device, scheme or artifice to defraud.

    • Engage in any act, or course of business that would operate as fraud."

  2. Advertising materials
    Distribution of any unregulated or fraudulent prospectuses, pamphlets, circulars, sales literature or advertising communications, including any/all hard copy and electronic materials.

  3. Misleading Filings
    Misleading filings are prohibited under the USA. Such items include any filings that make false or misleading statements, or omit material facts concerning investment advice or an offering.

  4. Other activities considered fraudulent include:
    • Informing a client that registration of a security means that the SEC or state Administrator has approved (likes) an offering, or a security is a "good offering".

    • Deliberately misquoting a security to effect a securities transaction.

    • Untrue or inaccurate statements regarding commissions, including both markups and markdowns.

    • Inaccurate statements regarding registration status. If you tell a client that a security will be approved for a NASDAQ listing, when in fact, the company has only submitted an application, you have committed fraud.

    • Any deliberate and/or misleading statements regarding financial statements, dividends, earnings or future expectations.

    • Telling a client anything about their account that is untrue - including returns.

    • Promising services that you, your firm or your associates cannot (or simply will not) fulfill - with the intention of promising such to gain securities related business. This includes anything from analyzing an investment to obtaining shares of an IPO.

Exam Tips and Tricks
The fourth section above is generally known as making false, or misleading, statements. At all times, it is fraudulent even to imply anything about a security that is not true. Omitting pertinent details with the intention to defraud will result in Administrative discipline!

The bottom line here is that if you state anything to your clients that is even REMOTELY untrue, (a lie) you are committing fraud. If you tell your client that a bulletin board stock is going to be huge, since it is soon to be listed on the NASDAQ National Market, and "he should buy it now", though you have no evidence that the stock will actually be listed, you have committed fraud. What's more, if you tell your client something misleading because you actually are trying to protect him/her from a loss, even if your intentions are sound, you have committed fraud.

Johnny Fast talker is an Agent for Big Blue Brokerage, which has recently come out with an analyst's report regarding the OTC BB oil/gas stock: Gassed Up. The firm's analysts believe the stock is a good buy, indicating a promising future with attractive growth potential. While getting doughnuts one morning, Johnny Fasttalker notices an article in a newspaper mentioning that Gassed Up officers are anticipating that the stock will soon be quoted on the NASDAQ National Markets system (NNM). Johnny is very excited about the news, since it reaffirms how brilliant his firm's analysts are. In turn, he immediately calls his best client to tell them about the stock. While chatting with his most risk-tolerant client, Johnny mentions that he noticed Gassed Up in the morning paper, which mentioned the possible NNM listing. Johnny feels that when the papers pick up such news, the upgrade in the stock's quotation generally is inevitable, and his client would be wise to get in before the listing is actually approved. Has Johnny committed any fraudulent activity?

Yes, though the morning paper reported that Gassed Up company officials anticipate the quotation in the NNM, Johnny has no specific (or public) information as to any official confirmation of NASDAQNM's approval. Thus, he has fraudulently misled his client, and can be liable for both civil and criminal penalties.

Trade Practices

Related Articles
  1. Personal Finance

    When (And How) To Fire A Client

    Firing the clients who take more of your time and effort than the revenue they contribute is a great way to improve your bottom line.
  2. Financial Advisor

    4 Strategies to Handle Clients Who Ignore Advice

    Working with clients that ignore your advice can be frustrating. Here are four ways to approach the situation.
  3. Financial Advisor

    Advisors: When Should You Fire a Client?

    Sometimes firing a client is necessary. Here's how to know when it's time to show a client the door.
  4. Financial Advisor

    Common Mistakes Advisors Make with Clients

    Financial advisors should learn to avoid making these these common mistakes with clients.
  5. Small Business

    Keeping Clients Through Good And Bad Times

    If you work in the financial industry, the secret to keeping clients happy is to be consistent.
  6. Financial Advisor

    How Advisors Should Prep for an Initial Meeting

    First impressions count, so prepare well for your first meeting with a client. Get to know as much as you can about the person and be ready to answer questions.
  7. Financial Advisor

    Advisors: How to Secure More of a Client's Assets

    Taking over a larger portion of client assets is an art. Here are some tips on how to increase your asset management.
  8. Financial Advisor

    How to Protect Client Assets in a Bear Market

    Here are some strategies for how to protect client assets in a bear market.
  9. Financial Advisor

    Advisors Should Be Ready for These 5 Questions

    Advisors should be prepared to provide answers to these common questions asked by prospective clients.
  10. Financial Advisor

    Top 3 Things NOT to Say to Clients

    Steadily growing your client roster can be tough these days. Communicating effectively with customers should be one of your top priorities.
Frequently Asked Questions
  1. Depreciation Can Shield Taxes, Bolster Cash Flow

    Depreciation can be used as a tax-deductible expense to reduce tax costs, bolstering cash flow
  2. What schools did Warren Buffett attend on his way to getting his science and economics degrees?

    Learn how Warren Buffett became so successful through his attendance at multiple prestigious schools and his real-world experiences.
  3. How many attempts at each CFA exam is a candidate permitted?

    The CFA Institute allows an individual an unlimited amount of attempts at each examination.Although you can attempt the examination ...
  4. What's the average salary of a market research analyst?

    Learn about average stock market analyst salaries in the U.S. and different factors that affect salaries and overall levels ...
Trading Center