The Uniform Securities Act strictly governs the ethical practices of agents, including the sharing of profits and losses in a customer’s account. As a general principle, this practice is prohibited to prevent conflicts of interest and protect clients from predatory arrangements. However, a very specific and narrow exception exists. An agent of a broker-dealer may share in the profits or losses of a customer’s account only if two critical conditions are met simultaneously. First, the agent must obtain prior written authorization from both the customer and the employing broker-dealer. Verbal consent or approval after the fact is insufficient. Second, the sharing of profits and losses must be in direct proportion to the financial contributions made to the account by the agent and the customer. This means if an agent contributes 10 percent of the capital in the account, they are only entitled to 10 percent of the profits and are responsible for 10 percent of the losses. The existence of a personal relationship, such as a friendship, or the agent’s role in providing advice does not alter this strict proportionality requirement. Failure to adhere to both of these conditions constitutes a prohibited practice.

The proposed action is the sharing of profits and losses in a customer’s account by an agent of a broker-dealer. The Uniform Securities Act and associated NASAA Model Rules establish very strict guidelines for such arrangements to be considered ethical and permissible. There is a general prohibition against this practice to prevent significant conflicts of interest. However, a narrow exception exists if three specific conditions are all met concurrently. First, the agent must have written approval from their employing broker-dealer before entering into the arrangement. Second, the agent must also obtain written approval from the customer. A verbal agreement, even from a trusted family member, is insufficient. Third, any sharing of profits and losses must be directly proportionate to the financial capital that the agent personally contributes to the account. If the agent contributes no capital, they cannot share in any profits or losses. In the described scenario, the agent fails on all three counts: the agreement is verbal, not written; the employing broker-dealer is not informed, let alone providing written approval; and the agent is not contributing any personal funds to the account. The existence of a family relationship does not waive any of these fundamental requirements, which are in place to protect the customer and the integrity of the firm. Therefore, the arrangement is a clear violation of ethical standards.

Under the Uniform Securities Act, it is generally considered an unethical business practice for an agent of a broker-dealer to share directly or indirectly in the profits or losses of any customer account. However, an exception exists that permits this activity under a very strict set of conditions. First, the agent and the customer must have a joint account. This account must be formally established and documented as such. Second, any sharing of profits and losses must be in direct proportion to the financial contributions made by the agent and the customer to the account. For example, if the agent contributes 20 percent of the capital, the agent may only share in 20 percent of the profits or losses. This proportionality requirement prevents agents from receiving compensation based purely on performance without having their own capital at risk. Third, and critically, the agent must obtain prior written approval for the joint account and the sharing arrangement from both the customer and the employing broker-dealer. A familial relationship between the agent and the customer does not waive or alter any of these requirements. All conditions must be met for the arrangement to be compliant. Failure to adhere to any one of these stipulations would render the activity an unethical and prohibited practice.

No calculation is required for this question. Under the Uniform Securities Act (USA) and the rules established by the North American Securities Administrators Association (NASAA), an investment adviser or investment adviser representative is generally prohibited from entering into, extending, or renewing any investment advisory contract that provides for compensation to the adviser on the basis of a share of capital gains upon or capital appreciation of the funds of the client. This is commonly known as a performance-based fee. The rationale behind this prohibition is to prevent advisers from taking excessive risks with a client’s assets in an attempt to generate a higher fee for themselves. However, there is a significant exception to this rule. Performance-based fees are permitted if the client is a “qualified client.” While states can set their own definitions, they often align with the federal definition under the Investment Advisers Act of 1940. A qualified client is generally an individual with at least a certain amount of assets under management with the adviser (e.g., $1.1 million) or a net worth (individually or with a spouse) of more than a certain amount (e.g., $2.2 million). In the scenario presented, the client, Mateo, does not meet the criteria to be considered a qualified client. The proposed fee structure, despite being a “fulcrum fee” that adjusts both up and down based on performance against a benchmark, is still a form of performance-based compensation. Because Mateo is not a qualified client, proposing such a fee arrangement is considered an unethical business practice under the USA. The fact that the benchmark is appropriate or that full disclosure is provided does not cure the violation. The State Administrator would view the proposal itself as a prohibited act, regardless of whether the client agrees to it, and could initiate disciplinary action against the IAR and the investment adviser firm.

The core issue in this scenario revolves around the prohibition against “selling away,” which is the term for a registered representative conducting private securities transactions without the knowledge and supervision of their employing broker-dealer. Under the Uniform Securities Act and associated rules, an agent must not effect any securities transaction that is not recorded on the regular books and records of the broker-dealer unless the agent has provided prior written notice to the firm and, if compensation is involved, received written permission from the firm to engage in the transaction. In this case, the Real Estate Investment Trust (REIT) is a security. By soliciting his brokerage clients to invest in this REIT, which is not an approved product of his firm, the agent is attempting to engage in a private securities transaction. His justification that he is acting in his capacity as a real estate agent is irrelevant because the product itself is a security and he is soliciting his securities clients. This action fundamentally bypasses the supervisory responsibilities of his employing broker-dealer, which is a serious violation. While using a personal email for client communication is also a violation of record-keeping and supervision rules, and acting as an agent for the REIT issuer could create registration issues, the primary and most severe violation is engaging in an unapproved private securities transaction.

Under the Uniform Securities Act, an agent sharing directly or indirectly in the profits or losses in a customer’s account is considered an unethical business practice unless specific conditions are met. For such an arrangement to be permissible, it must satisfy all of the following criteria: the arrangement must be approved in writing by the customer, the arrangement must be approved in writing by the agent’s employing broker-dealer, and the sharing of profits and losses must be in direct proportion to the financial contributions made by the agent and the customer to the account. In this scenario, the agent, Leo, did obtain the required written approvals from both the client, Anika, and his employing broker-dealer. However, the agreement to split profits and losses on a 50/50 basis is not in direct proportion to their respective capital contributions of 10% from the agent and 90% from the client. The proportionate split should have been 10% of profits and losses for the agent and 90% for the client. Because the sharing arrangement is not proportionate to the capital contributions, the agent has engaged in an unethical business practice. Meeting only some of the required conditions is not sufficient; all conditions must be met for the arrangement to be compliant.

The agent must refuse to facilitate the transaction. Under the Uniform Securities Act and associated NASAA Model Rules, engaging in any unethical or dishonest business practice is grounds for disciplinary action. While the scenario does not involve a direct loan to or from the agent, facilitating a loan from a client’s account to a third party, even a family member with power of attorney, falls under the agent’s broad ethical obligations. The critical issue here is the protection of the client, who is identified as vulnerable. The NASAA Model Rule on Financial Exploitation of Specified Adults requires agents to exercise diligence when there are reasonable grounds to believe financial exploitation may be occurring. A large, personal loan from an elderly client’s account to her son, even if he holds a POA, is a major red flag for potential exploitation. The power of attorney grants the son the legal ability to transact on the account, but it does not obligate the agent to execute any and all instructions. The agent’s primary duty is to the client, Mrs. Gable. Executing a transaction that is potentially detrimental to the client’s financial well-being and not for her direct benefit would be a breach of that duty. The agent must recognize this as a prohibited activity, refuse the request, and likely report the situation to their firm’s compliance or legal department for further review.

The primary violation in this scenario is engaging in private securities transactions, commonly known as selling away. Under the Uniform Securities Act, it is a prohibited practice for an agent to effect any securities transactions for a customer that are not recorded on the regular books or records of the broker-dealer the agent represents. This rule applies regardless of whether the agent receives compensation for the transaction. In this case, the investment in the local startup’s private placement is not being offered through Kenji’s firm, so facilitating it for Mei constitutes selling away. While the proposal for a joint account and proportional profit-sharing has its own set of rules, it is secondary to the main violation. The rules for sharing in a client’s account require, among other things, written authorization from both the client and the employing broker-dealer. The broker-dealer would not authorize such an arrangement for a transaction it has not approved and is not supervising. Therefore, the joint account proposal is merely a mechanism being used to facilitate the prohibited act of selling away. The root of the violation is the transaction itself being conducted outside the purview of the employing firm. The action is not a matter of discretion, as Mei is making the investment decision; Kenji is acting as an agent for an unapproved transaction.

Under the Uniform Securities Act, it is considered an unethical business practice for an agent to share directly or indirectly in the profits or losses of any customer account. However, there is a specific exception to this rule. An agent may share in the profits or losses of a customer’s account if three distinct conditions are met simultaneously. First, the agent must obtain prior written authorization from the customer for the specific arrangement. Second, the agent must also obtain prior written authorization from their employing broker-dealer. A general firm policy is not sufficient; the approval must be for the specific arrangement with the specific customer. Third, the sharing of profits and losses must be in direct proportion to the financial contributions made by the agent to the account. In the described scenario, the agent has met the condition of proportionate contribution. However, the agent has only secured a verbal agreement from the customer, not the required written authorization. Furthermore, while the broker-dealer has a general policy, the agent has not yet obtained specific written approval for this particular arrangement. Because two of the three mandatory conditions have not been met, proceeding with the arrangement would constitute a violation of ethical practices. The family relationship between the agent and the customer does not alter or waive these requirements.

Leo’s conduct constitutes multiple violations under the Uniform Securities Act. The primary violation is selling away, which is defined as an agent engaging in securities transactions that are not recorded on the books and records of their employing broker-dealer. This is a prohibited and unethical business practice. For an agent to lawfully participate in what is often called a private securities transaction, they must provide prior written notice to their firm. If the agent is to receive any compensation for the transaction, the employing broker-dealer must provide written approval for the agent’s participation, treat the transaction as if it is being done through the firm itself by recording it on the firm’s books, and supervise the agent’s participation. Since Leo did not notify Summit Securities and received compensation, he has clearly engaged in selling away. Furthermore, Leo’s registration as an agent for Summit Securities only permits him to represent Summit Securities in securities transactions. When he sold the limited partnership interests for Apex Properties LLC, he was acting as an agent for that issuer. Since he was not registered as an agent for Apex Properties, he was acting as an unregistered agent, which is a separate and distinct violation of the Act. The State Administrator has the authority to investigate these activities and can impose severe penalties, including suspension or revocation of his license and fines, for both the unethical practice of selling away and for acting as an unregistered agent.

The agent’s conduct involves two distinct and serious violations of ethical practices. First, the agent engaged in “selling away,” which is the execution of securities transactions by an agent without the knowledge and supervision of their employing broker-dealer. The promissory notes offered by the tech startup are considered securities. By introducing her clients to this investment and facilitating their participation, she is effecting securities transactions that are not recorded on the books and records of her firm. This is a prohibited practice regardless of whether she received direct compensation. The employing firm must have the opportunity to supervise all securities activities of its agents. Second, the agent violated rules regarding outside securities accounts. Registered representatives are generally required to provide prior written notification to their employing firm before opening a brokerage account with another member firm. The employing firm also typically requires duplicate copies of confirmations and statements for that outside account. Opening the account to purchase the notes for herself without notifying her employer is a clear violation of these rules, which are designed to allow the firm to monitor the personal trading activities of its employees for conflicts of interest and other potential violations. Both actions, selling away and failing to disclose an outside account, represent significant breaches of the agent’s ethical and regulatory obligations under the Uniform Securities Act and associated industry rules.

The agent’s conduct constitutes the prohibited practice known as selling away. This violation occurs when a registered agent engages in securities transactions that are not recorded on the regular books or records of the broker-dealer they represent. Under the Uniform Securities Act and FINRA rules, an agent must provide prior written notification to their firm before participating in any private securities transaction. If the agent is to receive compensation for the transaction, the broker-dealer must not only be notified but must also provide written approval for the agent’s participation. The firm must then record the transaction on its own books and supervise the agent’s involvement as if the transaction were its own. In this scenario, the agent failed on multiple levels. The transaction involved a security not approved by the firm. The agent did not provide any notice to the employing broker-dealer. Furthermore, the agent received direct compensation from the issuer for facilitating the transaction, which requires explicit firm approval. This activity completely circumvents the supervisory structure of the broker-dealer, exposing the firm to liability and the customer to risks from unvetted investments. The use of a pseudonym and private messaging on social media does not shield the agent from these regulatory obligations.

Under the Uniform Securities Act (USA), an individual is defined as an agent if they represent an issuer or a broker-dealer in effecting or attempting to effect transactions in securities. In this scenario, Priya is representing her employer, Quantum Dynamics Inc., which is the issuer of the securities. Her activities, which involve contacting potential investors to present the offering, fall under the general definition of attempting to effect securities transactions. However, the USA provides several specific exclusions from the definition of an agent when the individual is representing an issuer. One of the most significant exclusions applies to individuals who represent an issuer in transactions with financial institutions or institutional buyers. The term “institutional buyers” is defined by the state Administrator and typically includes entities like venture capital firms and institutional investment funds, which are the exact entities Priya is contacting. Because Priya’s activities are confined to representing the issuer in transactions with these institutional buyers, she falls under this specific exclusion. Consequently, she is not considered an agent under the USA for the purpose of these activities and is not required to register. The matter of her compensation, an annual bonus tied to overall company performance rather than a direct commission for soliciting sales, becomes a secondary point. The primary reason for her exclusion is the nature of the offerees. Even if she were paid a direct commission, the exclusion for transactions with institutional buyers would still apply.

The core violation in this scenario is the agent’s failure to provide prior written notification to his employing broker-dealer before opening a securities account at another financial institution. Under industry regulations, specifically FINRA Rule 3210 which is enforced by state Administrators under the general principles of the Uniform Securities Act, an associated person of a member firm must obtain prior written consent from their employer before opening a brokerage account at another member firm or financial institution. The agent must also inform the executing firm of their association with the employing firm. This rule is critical for enabling proper supervision. It allows the employing firm to monitor the personal trading activities of its agents to detect potential conflicts of interest, insider trading, selling away, or other prohibited activities. The other activities described, while raising ethical concerns, have specific contexts. Sharing in a customer’s account is permissible if done with written approval from the firm and the customer, and if the sharing is proportionate to the financial contributions made. Accepting a loan from a client is generally prohibited unless the client is in the business of lending money and the firm has procedures permitting it. However, the failure to disclose an outside account is a direct and unambiguous breach of supervisory and compliance rules, irrespective of the client’s involvement or sophistication.

Under the Uniform Securities Act, it is a prohibited and unethical business practice for an agent of a broker-dealer to make any representation that implies a guarantee of performance or specific investment results. This rule extends to all forms of communication, including social media and digital messaging. The agent’s statement, while not using the word “guarantee,” creates a strong and misleading implication of future success. By citing a specific historical outperformance figure from a “proprietary model” and then directly inviting prospective clients to apply this “strategy” to their portfolios, the agent is suggesting that similar results can be expected in the future. This constitutes an impermissible performance guarantee. The communication is not fair and balanced, as it highlights past successes without disclosing the risks involved or that past performance is not indicative of future results. While firms typically require pre-approval for such communications, the fundamental violation of the Act is the content of the message itself, as it is inherently misleading and promissory in nature. The issue is not about providing investment advice or using a testimonial, but rather about setting unrealistic and prohibited expectations of investment returns, which is a direct violation of ethical obligations.

This scenario describes a private securities transaction, commonly known as “selling away.” Under the Uniform Securities Act and associated industry rules, a registered agent must adhere to strict procedures before participating in any securities transaction outside the scope of their regular employment with a broker-dealer. The agent’s obligations are determined by whether they will receive compensation for their participation. Compensation is broadly defined and includes not only cash commissions but also non-cash items of value, such as securities or stock options. In this case, Anika is set to receive stock options, which are considered compensation. When compensation is involved, the agent must provide prior written notice to their employing broker-dealer. This notice must describe the proposed transaction and the agent’s role in detail. Crucially, because compensation is involved, the agent cannot proceed with the activity until the broker-dealer provides express written approval. Furthermore, if the firm approves the transaction, it must record the transaction on its own books and records and supervise the agent’s participation as if the transaction were being executed through the firm itself. This ensures the broker-dealer can meet its supervisory responsibilities and protect the public. The fact that the prospective investors are not current clients of the firm is irrelevant to the agent’s duty to notify and seek approval from their employer.

The Uniform Securities Act grants the state Administrator broad authority to take disciplinary action against an agent for engaging in dishonest or unethical business practices. A primary ethical obligation for any agent is the duty of suitability. This requires the agent to have reasonable grounds to believe that a recommendation is suitable for the customer based on their financial situation, investment objectives, and needs. Recommending a high-concentration, speculative investment to an elderly client who is admittedly overwhelmed and confused by investing is a clear breach of this suitability standard. Furthermore, the Act strictly governs how an agent may exercise control over a client’s account. Any form of discretionary power, which includes the authority to decide which security, the amount of security, or whether to buy or sell, must be granted by the customer in writing. Accessing a client’s account using their login credentials, even with verbal permission to merely monitor it, constitutes a form of control and can be interpreted as exercising de facto discretion. The absence of a written discretionary authorization makes this a serious violation. The combination of making a patently unsuitable recommendation to a vulnerable client and exercising a form of control over the account without the required written authorization constitutes a significant and actionable unethical business practice, giving the Administrator strong grounds for initiating proceedings. The lack of special compensation or the client’s verbal consent does not mitigate these violations.

The arrangement presented is a violation of the Uniform Securities Act on multiple fronts. First, it functions as a loan from a client to an agent. Under the ethical practice rules of the Act, an agent is prohibited from borrowing money from a client unless the client is a financial institution regularly engaged in the business of lending, such as a bank or a broker-dealer. A personal relationship with the client or the client’s sophistication does not create an exception to this rule. The advance of funds from the client to the agent constitutes a loan. Second, the contingency for repayment is tied directly to the performance of the client’s securities account. This creates an improper profit-sharing arrangement. Sharing in the profits or losses of a customer’s account is only permissible if the agent and client have a formal joint account, the arrangement is approved in writing by both the customer and the employing broker-dealer, and the sharing is in direct proportion to the capital contributed by each party. In this scenario, there is no joint account, and the agent is not contributing capital. Therefore, forgiving the loan based on account performance is a prohibited method of sharing in profits. The substance of the transaction, not the labels used by the parties, determines its ethical and legal standing. This arrangement creates significant conflicts of interest and is considered an unethical business practice under state securities law.

Under the Uniform Securities Act, an agent of a broker-dealer is generally prohibited from sharing directly or indirectly in the profits or losses of any customer account. However, an exception exists that permits such an arrangement if very specific conditions are met. First, the customer must provide prior written authorization for the specific sharing arrangement. Second, the agent’s employing broker-dealer must also provide prior written authorization. Third, and most critically for this scenario, the sharing of profits and losses must be directly proportional to the financial contribution made by the agent to the account. In this case, Amara contributes 10% of the capital but intends to receive 25% of the profits and losses. This violates the proportionality requirement. The rule is strict: if an agent contributes 10% of the funds, they can only share in 10% of the gains and losses. The only time the proportionality rule does not apply is when the customer is a member of the agent’s immediate family, which is not the situation here as Kenji is described only as a long-time friend. Therefore, even if both the client and the firm were to provide written consent, the proposed structure of the arrangement itself constitutes an unethical business practice.

Under the Uniform Securities Act, an agent sharing in the profits or losses of a customer’s account is a highly regulated activity. It is only permissible if specific conditions are met. First, the agent and the customer must have a joint account. Second, any sharing arrangement must be directly proportional to the capital contributed by each party. Third, the customer must provide prior written consent to the arrangement. Finally, the agent’s employing broker-dealer must also provide prior written approval. Separately, the Act addresses loans between agents and customers. Generally, an agent may not borrow money from or lend money to a customer. An exception exists if the customer is a financial institution regularly engaged in the business of lending, such as a bank or a broker-dealer. A close family relationship does not, by itself, create an exception to this prohibition. In the given scenario, the proposal for the agent to pay back their portion of the initial investment from future profits constitutes a loan from the customer to the agent. Because the agent is not contributing their own capital upfront in proportion to their share, the arrangement violates the prohibition on borrowing from a customer, even if all other conditions for a joint account were met.

Not applicable as this is a conceptual question. Under the Uniform Securities Act, all communications with the public by an agent, including those on social media, are subject to regulation. The definition of advertising is broad and encompasses communications distributed to more than one person. Even content on a personal social media profile can be deemed advertising if it relates to the agent’s securities business. A key ethical obligation is the prohibition against making any statement that is false or misleading in connection with the sale or purchase of any security. This includes guaranteeing a client that a specific result will be achieved with advice which will be rendered. While agents can share factual information, they cannot use their own success or lifestyle to imply that clients will achieve similar results. Such posts can be interpreted as implicit performance guarantees or testimonials, which are generally prohibited or strictly regulated. The agent’s lavish lifestyle posts, when linked to their professional capacity, create an unrealistic expectation of performance for prospective clients and are considered a misleading communication. An agent must not suggest that their high returns are typical or easily achievable. Responding to unsolicited inquiries by directing the person to official, supervised firm channels is the proper procedure and not a violation. Discussing general economic conditions without making specific recommendations is also typically permissible. The primary violation lies in the content of the communication itself, specifically its potential to mislead the public about potential investment outcomes.

The determination of whether registration as an agent is required hinges on the definition of an “agent” under the Uniform Securities Act. An agent is defined as an individual who represents a broker-dealer or an issuer in effecting or attempting to effect purchases or sales of securities. In this scenario, the individual is an Investment Adviser Representative (IAR) for a federal covered investment adviser. The IAR’s primary function is to provide investment advice for a fee, which in this case is based on assets under management. When the IAR facilitates the securities transaction for the client, it is crucial to identify whom the IAR is representing. The IAR is acting on behalf of the advisory client, pursuant to the advisory relationship. The IAR is not representing the third-party broker-dealer used to execute the trade. There is no employment, association, or compensation arrangement between the IAR and the executing broker-dealer that would establish a representative capacity. The IAR is simply using the broker-dealer as a venue to implement the advice given to the client. Furthermore, the IAR is not representing the issuer of the securities being bought or sold. These are secondary market transactions. Since the IAR does not meet the statutory definition of an agent—that is, representing a broker-dealer or an issuer in a securities transaction—the IAR is not required to register as an agent in the state for this activity. The action of placing the trade is considered an incidental part of the IAR’s fiduciary duty to the advisory client.

Under the Uniform Securities Act, an agent’s conduct is subject to strict ethical standards and prohibitions. The agent in this scenario committed several distinct violations. First, by arranging for a client to invest in a private fund not offered through his employing broker-dealer, he engaged in “selling away.” This is the practice of effecting securities transactions that are not recorded on the regular books and records of the employing broker-dealer, which is prohibited unless the transactions are authorized in writing by the firm prior to execution. The interest in the private real estate fund is considered a security. Second, the arrangement to receive a percentage of the client’s profits constitutes an improper sharing arrangement. Agents are generally prohibited from sharing in the profits or losses of a customer’s account. An exception exists for joint accounts where the sharing is in direct proportion to the financial contributions made by the agent and the client, and the arrangement has received prior written approval from the broker-dealer. The described scenario does not meet these specific conditions. Third, the agent failed to provide written notification to his employing broker-dealer of his outside business activity and the compensation he was to receive from it. Agents must disclose all outside business activities, especially private securities transactions, and are prohibited from receiving compensation for securities transactions from any source other than their firm without the firm’s explicit written permission. The finder’s fee and profit-sharing are forms of compensation that required prior disclosure and approval.

This is a non-mathematical question; therefore, no calculation is shown. Under the Uniform Securities Act, an agent of a broker-dealer is permitted to share in the profits or losses of a customer’s account only under specific and strict conditions. The arrangement is permissible if the customer provides prior written consent, the employing broker-dealer provides prior written consent, and the sharing of profits and losses is directly proportionate to the financial contributions made by the agent. The rule does not limit these arrangements to family members; it can be with any customer as long as all conditions are met. In this scenario, the agent, Kai, obtained written consent from the customer, Lin. However, he only received verbal approval from his branch manager. The Act explicitly requires written approval from the employing broker-dealer, not just a supervisor’s verbal consent. The firm’s internal policy regarding “immediate family members” is secondary to the state law’s requirements. Even if the cousin relationship met the firm’s policy, the lack of written authorization from the broker-dealer constitutes a violation of the Uniform Securities Act. Therefore, Kai has not satisfied all the necessary conditions to ethically and legally participate in the joint account’s profits and losses.

Under the Uniform Securities Act, an agent of a broker-dealer is strictly prohibited from effecting any securities transactions for a client that are not recorded on the regular books and records of their employing broker-dealer. This violation is commonly referred to as “selling away.” The requirement for all transactions to be recorded is fundamental to the regulatory framework, as it ensures that the broker-dealer can properly supervise the activities of its agents, assess the suitability of investments for clients, and maintain accurate records for regulatory review. An agent’s dual registration as an Investment Adviser Representative does not create an exemption from this rule. When acting as an agent, all securities transactions must flow through the employing broker-dealer. By arranging a transaction outside of the firm’s approved channels and without its knowledge or permission, the agent circumvents the entire supervisory system. This action is a serious breach of conduct, regardless of whether the investment itself is suitable or whether the agent believes they are acting in the client’s best interest. The receipt of undisclosed or unapproved compensation for such a transaction further compounds the violation and creates a significant conflict of interest. The primary violation in this context is the failure to have the transaction supervised and recorded by the broker-dealer.

Under the Uniform Securities Act, it is an unethical and prohibited practice for an agent of a broker-dealer to guarantee a client against investment losses. This rule is absolute and has no exceptions. The act of promising to reimburse a client for any losses incurred on a securities transaction misrepresents the fundamental nature of investing, which inherently involves risk. Such a guarantee is considered a manipulative, deceptive, or other fraudulent act or practice. In the described scenario, the agent’s promise to personally deposit the difference into the client’s account if the investment’s value falls below the initial principal is a direct guarantee against loss. While other actions described may also be violations, they are distinct. For instance, sharing in the profits or losses of a customer account is also prohibited, but the rule provides very narrow exceptions if there is a joint account, prior written consent is obtained from the customer and the broker-dealer, and the sharing is directly proportionate to the capital contributions made by each party. The agent’s proposal does not meet these criteria, but the existence of any exception means it is not prohibited under all circumstances. Similarly, making untrue statements of material fact, such as misrepresenting regulatory approval, is a general fraudulent practice. However, the specific act of guaranteeing a client’s account against loss is a standalone, explicitly forbidden practice with no permissible context for an agent.

The Uniform Securities Act (USA) generally prohibits agents from sharing in the profits or losses of a customer’s account. This rule is in place to prevent conflicts of interest and protect clients. However, the Act provides a very specific and narrow exception to this prohibition. For an agent to permissibly share in an account, three distinct conditions must be met concurrently. First, the agent must obtain prior written authorization from the customer for the specific arrangement. Second, the agent must also obtain prior written authorization from their employing broker-dealer. The firm must be aware of and approve the arrangement. Third, and most critically, the sharing of profits and losses must be directly proportional to the financial contributions made to the account by the agent and the customer. If the agent contributes 20% of the capital, they may only share in 20% of the profits and losses. Fulfilling only the client and firm approval requirements is insufficient. The proportional contribution rule is a mandatory element, not a guideline, and ensures the agent has “skin in the game” commensurate with their potential reward. All three of these conditions must be satisfied for the arrangement to be compliant with state securities law.

The central issue in this scenario is the determination of whether an individual is acting as an Investment Adviser (IA) under the Uniform Securities Act (USA). The USA defines an IA using a three-pronged test: 1) providing advice about securities, 2) as a business, and 3) for compensation. Agents of broker-dealers have an exclusion from the IA definition, but only if the advice they provide is solely incidental to their brokerage activities and they do not receive special compensation for it. In this case, Kenji’s actions meet all three prongs of the IA definition. He created a comprehensive financial plan, which constitutes providing advice about securities. He did this for special compensation, specifically the separate, flat fee of \(\$2,500\). This fee is not a standard commission on a trade; it is direct payment for the advice itself. Because he received special compensation, he loses the exclusion available to agents of broker-dealers. Therefore, he is acting as an Investment Adviser. Since he is not registered as an IA (or as an Investment Adviser Representative of a registered IA), he is in violation of the USA’s registration requirements. While other violations did occur, such as effecting transactions away from his firm (selling away) with the real estate partnership and unaffiliated annuity, the most fundamental violation from the Administrator’s perspective is operating as an unregistered Investment Adviser. This act establishes an illegal advisory relationship with the client, from which the other unethical actions stem. The Administrator’s primary mandate is to enforce the registration provisions of the Act to protect the public from individuals providing investment advice for compensation without proper oversight and qualification.

The core issue revolves around the definition of an “offer to sell” under the Uniform Securities Act (USA) and the registration requirements for agents. An offer is broadly defined to include any attempt or offer to dispose of, or solicitation of an offer to buy, a security for value. When Kenji responds to a direct question about a specific security (the XYZ Clean Energy ETF) from a resident of State C, his reply constitutes an attempt to solicit an offer to buy. Providing positive, specific details like “strong historical performance” and “competitive expense ratio” moves the communication beyond general, impersonal commentary and into the realm of a targeted solicitation, which falls under the definition of an offer. The Uniform Securities Act requires an agent to be registered in any state in which they direct an offer to sell or buy. Kenji is registered in States A and B, but not in State C, where the follower resides. Because his communication was a direct response to an individual he knows or should know resides in State C, the offer is considered to have been directed into that state. Therefore, Kenji is acting as an unregistered agent in State C. This is a direct violation of the USA. The fact that the communication occurred on a public social media platform does not negate the directed nature of the offer, as it was a specific reply to a specific individual’s inquiry. The violation occurs at the moment of the offer, regardless of whether a transaction is ultimately completed or any money changes hands.

The central issue in this scenario is the agent’s execution of a securities transaction outside the scope of his employment with his broker-dealer. This practice is known as “selling away” or engaging in private securities transactions. Under the Uniform Securities Act, an agent is prohibited from effecting any securities transactions that are not recorded on the regular books and records of the broker-dealer they represent, unless they have received prior written authorization from the firm. In this case, the interest in the real estate limited partnership (RELP) is considered a security. Kenji solicited his brokerage client and facilitated the investment in this security without the knowledge, approval, or supervision of Apex Brokerage. This action fundamentally undermines the supervisory responsibility of the broker-dealer, which is a cornerstone of securities regulation designed to protect the investing public. The firm has an obligation to supervise all securities activities of its agents, including reviewing investments for suitability and ensuring proper disclosures. By circumventing his firm, Kenji prevented this essential oversight. While other issues like conflicts of interest and undisclosed compensation exist, they are components of the primary and most severe violation, which is conducting securities business outside the firm’s established channels. The fact that the client is accredited does not negate the agent’s duty to conduct all securities business through the employing firm.