Investment Analysis Flashcards

An investigator reviewing a client's brokerage account notices frequent trades that generated large commissions but little benefit to the client. What misconduct does this pattern most likely indicate?

Answer: Churning

Churning is excessive trading by a broker mainly to generate commissions, regardless of the client's interests.

Which federal agency is the primary regulator of the U.S. securities markets?

Answer: Securities and Exchange Commission (SEC)

The SEC enforces federal securities laws and regulates securities exchanges, brokers, and investment advisers.

What online database lets an investigator check a stockbroker's registration history, customer complaints, and disciplinary actions?

Answer: FINRA BrokerCheck

FINRA's BrokerCheck shows broker and firm registrations, employment history, and disclosure events.

A scheme pays 'returns' to earlier investors using money from new investors rather than real profits. What is it called?

Answer: Ponzi scheme

A Ponzi scheme uses new investor funds to pay earlier investors, giving the false appearance of profitable returns.

Which SEC filing shows that a corporate insider has changed their ownership of the company's shares?

Answer: Form 4

Insiders generally must file Form 4 within two business days of a change in beneficial ownership.

In an asset search, which document would most directly reveal the dividends and interest income a subject received during the year?

Answer: Form 1099-DIV and 1099-INT

Forms 1099-DIV and 1099-INT report dividend and interest payments, which point to investment accounts.

A promoter hypes a thinly traded microcap stock with false claims and then sells his own shares at the inflated price. This is best described as:

Answer: Pump-and-dump

In a pump-and-dump, promoters inflate a stock's price with misleading hype and then sell their holdings to investors.