p. 94-p.98

Case study, p.94

• Registered securities agent informs client that largest holding will be listed on NYSE and over-states earnings by $1/share to make her more comfortable to buy more shares
• Verdict: Agent violated the USA by deliberately misrepresenting the earnings of First Tech Internet Services

Failure to state material facts

• full disclosure NEED account ID, description of security, # of shares, for bond: total par value, terms and conditions of order (market/limit), time of order entry and execution, identity of agent who accepted order

Case study

• when NYSE accepts listing application, there is an announcement that First Tech Internet Services will publish its financial statements in a newspaper advertisement. Agent intentionally did not mention this advertisement to client. Research department prepare negative report-found out how a change in accounting will hurt earnings. Agent continues to recommend stock because it will have greater exposure from the Exchange listing which will outweigh the future decline in earnings
• Verdict: The agent violated the USA. Did not make misleading statements. Did not disclose the advertisement. He failed to mention the accounting change would lead to extreme loss in earnings 

material inside information, information about a company that has not been communicated to the general public and would likely affect the value of a security

• violation when information is used for trading. Agent violates as does person acting on inside information

Case study, p. 95

Friend and neighbor of president and owner of >1/2 of First Tech's securities. Mr. Cage discloses to friend that company has discovered a new technology that will double their earnings. Neighbor buys additional shares.
Verdict: Neighbor violated USA by acting on inside information

Security Delivery Delays

• it is your money and must be sent to you upon request

Churning 

• what is excessive for an 80-year old pensioner is different than 40-year old law-firm partner
• trading that is excessive in size or frequency

Unsuitable recommendations

• need reasonable grounds to recommend a security

PROHIBITED

• recommend securities transactions without regard to the customer's financial situation, needs, investment objectives
• induce transactions just to get commissions (churning)
• recommend a security without reasonable grounds
• make blanket recommendations
• fail to sufficiently describe the important facts and risks concerning a transaction or security

Case study, p. 97

• Thompson has a wide variety of client and likes First Tech, a growth stock that pays no dividends. He recommends to all clients without telling them about the volatility of the stock and how the firm's  research department downgraded earnings.
• Verdict: Thompson violated USA 1) made recommendation without regard to different financial conditions, needs, and objectives of his varied client base-not right for clients with fixed incomes and limited financial resources 2) unsuitable should have revealed earnings volatility and the downgrade in earnings 

Situation:

You made an appropriate recommendation, client is unhappy with it.

• Try to educate your client
• Your client makes the final decision

Free Lunch Seminars, p. 98

• prohibited business practice

Unauthorized transactions

• need authorization to execute a transaction for a customer

Exercising discretion

• need written discretion unless power is about time/price to execute and order
• decide 1) asset (security), 2) action (buy or sell), 3.) amount-how many shares

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