Series 22 flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Do Not Call hours

Telemarketing calls may be placed only between 8:00 a.m. and 9:00 p.m. local time at the called party's location, and the firm must honor national and internal do-not-call lists.

General solicitation ban

Rule 506(b) forbids advertising or general solicitation; offers may be made only to purchasers with whom the issuer or its agents have a pre-existing substantive relationship.

Finder's fees

Paying transaction-based compensation to an unregistered person for locating investors is prohibited; only registered representatives may be paid for securities solicitations.

Rule 2210 DPP filing

Retail communications about public direct participation programs must be filed with FINRA's Advertising Regulation Department within 10 business days of first use.

Principal pre-approval

A registered principal must approve retail communications, including sales literature and call scripts, before first use, and the firm retains copies for three years.

Existing business relationship

A prior transaction permits telemarketing calls for 18 months, and a customer inquiry permits calls for 3 months, unless the customer has opted out.

Accredited investor

A person with net worth exceeding $1,000,000 excluding the primary residence, or income over $200,000 ($300,000 joint) in each of the two prior years.

Qualified purchaser

An individual or entity owning at least $5,000,000 in investments, which allows unlimited investors in a Section 3(c)(7) private fund.

Liquid net worth guideline

Industry practice limits aggregate direct participation program purchases to roughly 10% of an investor's liquid net worth; many programs impose lower standards.

CIP required data

Name, date of birth, residential address, and taxpayer identification number must be collected and the customer's identity verified under the customer identification program rules.

Trusted contact person

Under FINRA Rule 4512 firms must try to obtain a contact for natural-person accounts but may not disclose account information or act on that person's instructions.

UGMA/UTMA account

A custodial account with one custodian and one minor owner; gifts are irrevocable and the assets must be used for the minor's benefit.

Joint tenants with right of survivorship

Two or more owners hold equal interests, and on the death of one owner title passes automatically to the surviving owners outside of probate.

Blind pool program

A direct participation program that has not identified specific properties or projects when the offering begins, creating greater risk that must be disclosed.

Passive activity loss limit

Losses from a direct participation program offset only passive income; disallowed losses are suspended and fully deductible when the interest is completely disposed of.

At-risk rules

Deductions are limited to cash plus recourse debt the investor is economically at risk for; nonrecourse debt generally does not count outside real estate.

Intangible drilling costs

Independent producers may deduct 70% of IDCs in the year incurred and amortize the remaining 30% over 60 months; integrated producers amortize all IDCs.

Percentage depletion

A deduction of 15% of gross income from a depleting oil and gas property, limited to 100% of net income from the property and 65% of taxable income.

Prospectus delivery

In a registered direct participation program offering, a final prospectus must be delivered to the purchaser no later than with the confirmation of sale.

Organization and offering expenses

Costs of forming a program and selling its units; the prospectus must disclose them, and they reduce capital actually available for investment.

Reg BI care obligation

The firm must have a reasonable basis and a customer-specific basis for a recommendation and must consider reasonably available alternatives, including cost.

Rule 17a-4 retention

Books and records must be preserved for six years, with the first two years maintained in an easily accessible place.

DPP transfer restrictions

Limited partnership units are generally not freely transferable; the partnership agreement usually requires general partner consent and no established secondary market exists.

Customer complaint record

FINRA Rule 4513 requires the firm to keep a record of each written customer complaint and the firm's response, available to regulators.

Secondary market discount

Because direct participation program units are illiquid, resales typically occur at a discount to the original offering price, sometimes a substantial one.

Investment objectives record

Rule 17a-3 requires the firm to record each customer's investment objectives and to keep that information current as circumstances change.

Rule 15c2-4 escrow

In an offering with a minimum contingency, investor funds must be held in a separate escrow account and returned promptly if the minimum is not reached.

Form D deadline

A Regulation D offering must file Form D with the SEC within 15 days after the first sale of securities in the offering.

Blind pool confirmation disclosure

Rule 10b-10 confirmations for direct participation programs must state that the security is a DPP and whether the program is a blind pool.

Accredited investor verification

Under Rule 506(c) the issuer must take reasonable steps, such as reviewing tax returns or account statements, to confirm each purchaser's accredited status.

Subscription agreement

The investor's written offer to purchase units, containing representations about suitability, accredited status, and agreement to the partnership's terms.

Blue sky notice filing

States may require notice filings, fees, and their own suitability standards for Regulation D offerings sold to residents of that state.